UK Dividend Aristocrats – major changes in July 2021

Key points:

• The UK Dividend Aristocrats Index is created by S&P and is based on a managed dividends policy of increasing or stable dividends for at least 10 consecutive years.
• 40 UK stocks are a member of this list.
• In Europe, it is not common to focus on paying a dividend in a row ( consecutive years) to the shareholders.
• End of June, S&P introduced some new rules, which resulted in several changes to the list.

The S&P 500 applies the following criteria to construct the US Dividend Aristocrats list:

• must be members of the S&P 500
• must have increased dividends every year for at least 25 consecutive years
• Market Cap at least USD 3 billion
• Liquidity at least USD 5 million (average daily value traded)
• Diversification, at least 40 constituents and not sector allocation above 30%

The UK Dividend Aristocrats are based (by S&P) on the 40 highest dividend-yielding UK companies within the S&P Europe Broad Market Index (BMI) and a managed dividends policy of increasing or stable dividends for at least 10 consecutive years.

Next to the currencies (GBP vs USD), the two major differences are:

• Increasing or stable dividends for at least 10 consecutive years vs 25 consecutive years (US)
• 40 highest dividend-yielding (UK), in the US the height of the yield is not a selection factor.

In June 2021, S&P has announced an update to the Monthly Dividend Review (“MDR”) for the UK and high-yield euro dividend aristocrats.

A relevant change is to focus more on the quality of dividend. The Constituent Selection Rule is now:

“Stocks must have increased or maintained stable dividends for at least 10 consecutive years. Stocks cannot have an indicated yield of more than 10% as of the index rebalancing reference date. In addition, new index constituents must have a maximum 100% dividend payout ratio, and existing index constituents must have a non-negative dividend payout ratio”

New UK Dividend aristocrats added to the index in July are:

• Diploma plc
• BAE Systems plc
• Electocomponents plc
• Rio TInto Group plc
• Dechra Pharmaceuticals plc
• Admiral Group
• Primary Health Properties plc

The Dividend UK Aristocrats Excel spreadsheet contains the following fundamental and stock price performance metrics for each stock in the index.

Fundamental metrics:

• Dividend & earnings per share
• Dividend Yield
• Pay-out ratio

There is also a European Dividend Aristocrats list, which entails European stocks with 10+ consecutive years of dividend increases or stable dividends.

In 2021 the UK Dividend Aristocrats index performance is at the moment of writing up 9.5% year-to-date and still not back to the levels of early 2020. The annualized total return over 10 years is 5.32%. The indicated dividend yield is around 3.9% and the average projected PE is 15.3 for the stocks in this index.

The average dividend yield for all the UK dividend aristocrats is around 3.9% at the moment of writing. Here are the 10 highest UK dividend aristocrats yields:

UK Dividend Aristocrat #5: Jupiter Fund Management Plc

Dividend Yield: 6.1%

Increased or maintained dividend: 10 years

Jupiter Fund Management PLC is a fund manager, engaged in managing equity investments on behalf of retail, institutional and private client investors across products, including the UK and offshore mutual funds, segregated mandates, and investment trusts.

UK Dividend Aristocrat #4: Legal & General Group Plc

Dividend Yield: 6.2%

Increased or maintained dividend: 12 years
Legal & General Group PLC sells insurance products and other financial services. It transacts life assurance and long-term savings business, investment management, and general insurance and health business.

UK Dividend Aristocrat #3: Phoenix Group Holdings Plc

Dividend Yield: 6.5%

Increased or maintained dividend: 10 years

Phoenix Group Holdings is a specialist closed life and pension fund consolidator. It manages closed life funds by protecting and enhancing policyholders’ interests.

UK Dividend Aristocrat #2: British American Tobacco Plc (BAT)

Dividend Yield: 7.6%

Increased or maintained dividend: 24 years

British American Tobacco PLC manufactures and sells cigarettes and other tobacco products under the brands Dunhill, Kent, Lucky Strike, Pall Mall, and Rothmans. It also offers Vapour Products, like e-cigarettes, and Tobacco Heating Products.

UK Dividend Aristocrat #1: Rio Tinto Group

Dividend Yield: 7.8%

Increased or maintained dividend: 10 years