In brief:
- The Dividend Aristocrats are companies of the S&P 500 that have paid steadily increasing dividends for at least 25 years have outperformed the broader market over time.
- An annual rebalancing takes place every year, with new additions and deletions.
- This article lists two stocks that could join the dividend aristocrats list in 2021.
- Exxon Mobil (XOM) could lose its dividend aristocrats status in 2021.
The Dividend Aristocrats are the ‘best of the best’ dividend growth stocks. They have a long history of outperforming the market and with lower volatility. The lower volatility gives some investors “peace of mind” but comes also with a price. In 2020, the total return of the dividend aristocrats is underperforming the S&P 500-index again.
Dividend Aristocrat changes in 2020
Let’s have a look at how the Dividend Aristocrats Index has changed in 2020 first.
The requirements to be a Dividend Aristocrat are:
- Must be a member of the S&P 500 index
- Have 25+ consecutive years of dividend increases
- Meet certain minimum size & liquidity requirements
- S&P also applies certain diversification rules.
S&P Dow Jones Indices announced the annual rebalancing results for the S&P 500 Dividend Aristocrats in February 2020. As a result, seven new companies will be added to the S&P 500 Dividend Aristocrats Index.
Here are the seven new S&P 500 Dividend Aristocrats added in February 2020:
- Amcor plc (AMCR)
- Atmos Energy Corp (ATO)
- Realty Income Corp (O)
- Essex Property Trust (ESS)
- Rost Stores inc. (ROST)
- Albemarle Corp (ALB)
- Expeditors Intl of WA inc (EXPD)
This meant that the S&P 500 Dividend Aristocrats Index grew from 57 to 64 members. This was a new “members record”.
On March 31st, 2020, United Technologies merged with Raytheon to form Raytheon Technologies, changed its ticker to RTX, and spun off Carrier Global (CARR) and Otis Worldwide (OTIS) to bring the total Dividend Aristocrats to 66.
Ross Stores (ROST), which was added to the Dividend Aristocrats list in February this announced it is suspending its dividend in May this year. The company was officially removed by S&P from The Dividend Aristocrats Index prior to the market open on July 1st, bringing the total constitutes down to 65.
(See also an overview of all changes since 2009)
Two dividend aristocrat candidates for 2021
Two members of the S&P 500 index that do have 24 consecutive years of dividend increases today and should reach the dividend Aristocrat status are Church & Dwight (CHD) and Stryker Corp (SYK) in 2021.
Church & Dwight is a consumer staples company that manufactures and distributes products under a number of well-known names like Arm & Hammer, Trojan, OxiClean, Spinbrush, First Response, Waterpik, Nair, Orajel, and XTRA. The company was founded in 1896, has increased its dividend for 24 consecutive years, and trades with a market capitalization of $20+ billion.
Church & Dwight’s dividends in 3 years are forecast to be well covered by earnings with a 30.9% payout ratio. The current annual dividend yield is 1.11% based on an annual dividend payment of $0.96.
Stryker Corp (SYK) is a global leader in the medical device sector. The company’s product lines include surgical equipment, neurovascular products, and orthopedic implants. Stryker Corporation was founded in 1941 and is headquartered in Kalamazoo, Michigan. The company has increased its dividend for 24 consecutive years and trades with a market capitalization of $87 billion.
The current annual dividend yield is 0.99% based on an annual dividend payment of $2.30. Here is how the dividend yield has evolved over the last 5 years.
Based on their 5 years total return, both companies outperformed the Dividend Aristocrats Index as the chart below displays.
Exxon Mobil at Risk in 2021
Exxon Mobil Corp. (XOM) has been a strong dividend aristocrat, with 37 consecutive annual dividend raises. Exxon is currently suffering from the collapse in the demand for oil products caused by the pandemic. As a result, Exxon decided in April to leave its quarterly dividend unchanged, when it traditionally raises the dividend at that time each year. Exxon paid the same dividend ($0.87 per share) for seven consecutive quarters now. Unless the company makes a move in 2021 at the latest, it will no longer be a Dividend Aristocrat.
