S&P 500 Dividend Aristocrats

The S&P 500 Dividend Aristocrats Index is a list of companies in the S&P 500 with a track record of increasing dividends for at least 25 consecutive years. It tracks the performance of well-known, mainly large-cap, blue-chip companies. Standard & Poor's will remove companies from the index when they fail to increase dividend payments from the previous year. The index is rebalanced annually in January.

The S&P 500 Dividend Aristocrats includes stocks with a float-adjusted market capitalization of at least $3 billion and an average trading volume of at least $5 million, in addition to consistently increasing dividend payments. The index typically contains 40 to 50 companies.

The strength of the dividend aristocrats lies not just in the ability to continually increase dividend payments to shareholders, but also performance. These companies have historically outperformed the S&P 500 by a little more than 1% per year and exhibit slightly less volatility.

Dividend aristocrats come from various industries and sectors. Some companies have been dividend aristocrats for decades, such as Emerson Electric Co., which sells electronic products and engineering services to industrial clients. Others companies, like Praxair (PX), which makes industrial gases, Roper Technologies (ROP), a designer of software and other products, and A.O. Smith (AOS), which makes water heating an purification equipment, were added to the list in early 2018. 

The 2008 recession caused the removal of many companies from the list like Bank of America (BAC), General Electric (GE) and Pfizer (PFE). A company can be dropped from the index if it does not increase its dividend or if it is removed from the broader S&P 500 Index. 

One criticism of companies on the dividend aristocrats list is they sometimes use share buybacks to facilitate dividend increases. The problem is a true dividend aristocrat should increase payouts to shareholders from year to year, and if the company is overpaying for its shares it may not be acting in shareholders’ best interests, even if dividends are increasing. 

Exchange-traded funds (ETF) are a popular way of gaining exposure to the list of dividend aristocrats. Some popular assets that directly follow the index include the ProShares S&P 500 Dividend Aristocrats (NOBL) and the SPDR S&P Global Dividend ETF (WDIV). Other funds that track dividend stocks, but don't directly follow the index include the iShares Select Dividend ETF (DVY) and the iShares High Dividend ETF (HDV). Each tracks some of the 53 stocks contained in the aristocrats index.