The S&P 500 Dividend Aristocrats Index comprises companies within the Standard & Poor’s 500 Index (S&P 500) that have maintained a track record of increasing their dividends for an impressive 25 consecutive years. Each constituent company is equally weighted within this prestigious index.
Key Insights
- Elite Selection: The S&P 500 Dividend Aristocrats Index features prominent large-cap, blue-chip companies known for substantial market presence.
- Stratified Criteria: To qualify, stocks must possess a minimum float-adjusted market capitalization of $3 billion and an average daily trading volume of at least $5 million.
- Stringent Consistency: A company risks being dropped from the index if it fails to increase its dividend or if it is removed from the broader S&P 500 Index.
Grasping the S&P 500 Dividend Aristocrats Index
This index tracks the performance of well-established, primarily large-cap blue-chip companies. Companies failing to increase dividend payments from the previous year are excised from the index, which is rebalanced quarterly—in January, April, July, and October.
In addition to continually increasing dividend payments, index constituents must maintain a float-adjusted market cap of at least $3 billion and meet a daily trading volume threshold of $5 million. As of mid-2023, the index encapsulates at least 40 companies, with 66 members listed as of July 31, 2023.
Although the strength of these companies lies in their ability to increase dividends consistently, the index has not necessarily outperformed the S&P 500 over annualized returns for one, three, or five years as of August 2023.
One consideration for investors is that companies on this list may occasionally use share buybacks to facilitate dividend increases. While this helps maintain the dividend growth streak, it might not serve shareholders’ best interests if an overvaluation occurs.
Esteemed Constituents of the S&P 500 Dividend Aristocrats
Dividend Aristocrats hail from diverse sectors, representing a broad spectrum of industries. Companies with decades-long dividend growth histories, such as Emerson Electric Co. (EMR), coexist with relatively recent entrants like Roper Technologies (ROP) and A.O. Smith (AOS), both eligible since 2018.
In January 2023, Nordson Corp, CH Robinson Worldwide Inc, and J. M. Smucker Co joined the index. However, membership isn’t permanent; failure to meet criteria can result in removal as witnessed during the 2008 recession when Bank of America (BAC), General Electric (GE), and Pfizer (PFE) were dropped from the list.
Leading Constituents
As of July 31, 2023, the majority of Dividend Aristocrats are clustered in the industrials (24.1%) and consumer staples (22.8%) sectors. Materials, financials, and healthcare round out other significant segments:
| Top 10 S&P 500 Dividend Aristocrats Constituents by Index Weight | ||
|---|---|---|
| Company | Symbol | Sector |
| Pentair PLC | PNR | Industrials |
| Stanley Black & Decker Inc | SWK | Industrials |
| Albemarle Corp | ALB | Materials |
| Caterpillar Inc | CAT | Industrials |
| Sherwin-Williams Co | SHW | Materials |
| Nordson Corp | NDSN | Industrials |
| Automatic Data Processing Inc | ADP | Industrials |
| Brown & Brown Inc | BRO | Financials |
| Intl Business Machines Corp | IBM | Information Technology |
| Essex Property Trust | ESS | Real Estate |
Smooth Entry: Investing in the Dividend Aristocrats
A favoured entry method into the S&P 500 Dividend Aristocrats is through exchange-traded funds (ETFs). The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) is a direct tracker of the index, offering a simple investment path.
Alternative funds that include dividend stocks without specifically tracking the Aristocrats Index include the iShares Select Dividend ETF (DVY), SPDR S&P Global Dividend ETF (WDIV), and iShares Core High Dividend ETF (HDV). Despite their broader focus, they often include many index constituents.
Navigating Your Investment
The optimal strategy to invest in the S&P 500 Dividend Aristocrats is through a fund closely tracking the index. Consider choosing from the diverse SPDR Aristocrats ETFs, tailored to reflect this stable income-generating index.
Delving Deeper: ProShares S&P 500 Dividend Aristocrats
This ProShares ETF replicates the S&P 500 Dividend Aristocrats Index and is suitable for investors seeking the steady dividends offered by these companies without purchasing individual shares.
Dividend Payments and You
While direct investment in the S&P 500 is infeasible, funds tracking the index such as the SPDR S&P 500 ETF offer a viable option. These funds pay out dividends generated by holdings within the index.
Conclusion: Embrace Consistent Dividends
For dividend-focused investors, aligning with funds that track the S&P 500 Dividend Aristocrats Index is a robust strategy. Constituted of companies with a long-standing history of dividend growth, these investments add a significant income component to your portfolio.
Related Terms: ETFs, Dividends, Blue-Chip Stocks, Long-Term Investment.
References
- S&P Dow Jones Indices. “S&P 500 Dividend Aristocrats”.
- S&P Dow Jones Indices. “S&P 500 Dividend Aristocrats”, Download S&P 500 Dividend Aristocrats Index (USD) Factsheet, Page 1.
- S&P Dow Jones Indices. “S&P 500 Dividend Aristocrats”, Download S&P 500 Dividend Aristocrats Index (USD) Factsheet, Pages 1, 4.
- S&P Dow Jones Indices. “S&P 500 Dividend Aristocrats”, Graph View: Compare to S&P 500.
- Nasdaq. “EMR Dividend History”.
- S&P Dow Jones Indices. “S&P Dow Jones Indices Announces Rebalancing Results for the S&P 500 Dividend Aristocrats: January 24, 2018”, Page 1.
- S&P Dow Jones Indices. “S&P Dow Jones Indices Announces Rebalancing Results for the S&P 500 Dividend Aristocrats: January 24, 2023”, Page 1.
- S&P Dow Jones Indices. “S&P Dividend Aristocrats Indices Methodology”, Pages 4, 8. Download PDF.
- Wall Street Oasis. “S&P 500 Dividend Aristocrats”.
- S&P Dow Jones Indices. “S&P 500 Dividend Aristocrats: Data”.
