The famous US Dividend Aristocrats are a select group of S&P 500 stocks with 25+ years of consecutive dividend increases. 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. In Europe, it is not common to focus on paying a dividend in a row ( consecutive years) to the shareholders.
Difference UK and US Dividend Aristocrats
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.
Note: Due to COVID-19 and the above-mentioned criteria, the number of UK dividend aristocrats has been below 40 several times with a low (minimum) of 35 members.
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”
The Dividend UK Aristocrats Excel spreadsheet contains the following fundamental and stock price performance metrics for each stock in the index.
- 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 2020 the UK Dividend Aristocrats index performance is at the moment of writing down almost 20% year-to-date. The annualized total return over 10 years is 6.08%. The indicated dividend yield is around 4.1% and the average projected PE is 14.85 for the stocks in this index.
As explained the UK Dividend Aristocrats Index currently contains 35 stocks. As you can see below, the Financial sector accounts for 29.9% of the index. Materials are on the other end of the spectrum at less than 2% of the European Dividend Aristocrats Index. To compare, the largest US dividend aristocrats sector is Consumer staples.
High Yield Dividend UK Stocks
The UK Dividend Aristocrats are based on the 40 highest dividend-yielding UK companies with increasing or stable dividends for at least 10 consecutive years. High yields are typically seen as a warning sign that dividends are unsustainable. For the UK stocks one should keep in mind that dividend yields on (all) UK shares are at their highest level, on average 4.8%, since 2009. So the UK Dividend Aristocrats list will consist of many stocks above this average.
Dividends continue to grow even while investors have concerns over the trade war, Brexit, and interest rates. Rising profitability, more special dividends, and a weaker pound helped UK dividends rise 5.1% in 2018 to a record GBP 99.8bn. Forecasts for 2019 are even higher and expecting the total dividends paid to GBP 104bn.
It will not be a surprise that the top-5 of the highest UK dividend aristocrats yields are well above 5% :
Here are all 35 UK dividend aristocrats group by sector according to the criteria set by S&P.
Other Sources of Dividend Investment Ideas
There are several lists to quickly screen for businesses that regularly pay rising dividends.
- The Dividend Aristocrats Index is based on 64 companies part of the S&P 500 and with 25+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of less than 20 businesses with 50+ years of consecutive dividend increases.
- The MoneyInvestExpert Defensive Aristocrats is a performance-based top-10 selection of the Dividend Aristocrats to outperform the market in the long-term.
- Portfolio lists like the Berkshire Hathaway Portfolio or Bill Gates’stock portfolio can be a source.
- For the European focused investors, there is also the list of European Dividend Aristocrats.
- Dividend Champions are not necessarily members of the S&P 500 index, have increased their dividend for 25 or more consecutive years.
- 100+ years of dividend, the list of stocks that pay over 100 years of dividend can be a list of inspiration.
- Blue Chips stocks from the US or the European ones.
Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.
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