The Dividend Aristocrats

Marcus Tuck

Mason Stevens

This strategy should not be confused with alternative "yield" or "high yield" equity ETFs that might invest in high-yielding stocks that typically do not have the ability to grow the dividend on a consistent basis over time.

Since 1926 dividends have contributed nearly one-third of total equity returns, with capital gains making up the rest. Unlike strategies that focus on high dividend yields, which typically come from the financials and utility sectors, this alternative approach is more diversified across other sectors. The sectors most represented in the US S&P 500 Dividend Aristocrats index are Consumer Staples (27.0%), Industrials (15.8%), Health Care (13.9%), Financials (11.8%) and Consumer Discretionary (11.5%).

The starting yield on a Dividend Aristocrat stock may not be high but, because of the stock's ability to grow the dividend year after year, the yield based on your purchase price becomes higher and higher each year.

That is far more preferable than buying a high-yielding stock now only to find that the yield was temporary (or illusory) because the dividend had to be cut.

Stocks that can consistently grow their dividends tend to have other benefits as well. They are typically less volatile, generate good free cash flow and experience good capital growth over time.

For those who prefer to own individual stocks rather than using an index approach, the individual Aristocrat stock constituents are a good universe to go hunting in.

Among the 50 or so US Dividend Aristocrat stocks are some familiar names such as 3M Company (MMM), Abbott Laboratories (ABT), AT&T (T), Colgate-Palmolive (CL), Illinois Tool Works (ITW), Johnson & Johnson (JNJ), Kimberly-Clark (KMB), McDonald's (MCD), Medtronic (MDT), PepsiCo (PEP), Proctor & Gamble (PG), Walmart (WMT) and Walgreen Boots Alliance (WBA).

Less well known Dividend Aristocrats include Air Products & Chemicals (APD - industrial gases), Becton Dickinson (BDX - medical equipment), Bemis Company (BMS - packaging), C.R. Bard (BCR - medical equipment), Ecolab Inc (ECL - sanitation), Leggett & Platt (LEG - inner springs), Sysco Corporation (SYY - food distribution) and Sherwin-Williams (SHW - paint).

Even S&P Global (formally known as McGraw Hill Financial, SPGI), which owns the Dividend Aristocrat index, is a member of its own exclusive club.

Perhaps the closest example of an Australian Dividend Aristocrat, under the softer definition of increasing or stable dividends for at least ten years, would be Ramsay Health Care (RHC). With a dividend yield under 2%, it is far from being a high-yielding stock, but it has an excellent track record of consistently growing its dividend and delivering capital growth. When the late Paul Ramsay left a $3.3 billion bequest of RHC shares to his charitable foundation, the $55 million per annum (and growing) of dividends is the gift that keeps on giving.

This article was contributed by Mason Stevens:  (VIEW LINK)


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Marcus Tuck
Marcus Tuck
Head of Equities
Mason Stevens

Responsible for identifying domestic and international equity investment opportunities. 25 years of financial markets experience as an equity strategist, economist, analyst, portfolio manager and consultant.

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