Definition

S&P 500 Dividend Aristocrats Index

The S&P 500 Dividend Aristocrats Index is a directory of companies, which have a track record of providing increasing dividends every year for at least the last 25 consecutive years. All these companies are part of S&P 500.  Equal weights are assigned to each company under the index as every constituent of the index is treated as a different investment opportunity without considering

Highlights
  • The S&P 500 Dividend Aristocrats Index comprises of a list of companies, with a record of its dividends every year.
  • If in a year, the dividend payment isn’t increased from the last year, the company is removed from the index by S&P.
  • The index includes stocks with and an average daily trading volume of minimum US $5 million and a float-adjusted market capitalization of minimum US $3 billion.

Source: Copyright © 2021 Kalkine Media

Understanding S&P 500 Dividend Aristocrats

The S&P 500 Dividend Aristocrats Index keeps a track of the performance of widely known and majorly large cap blue chip companies. When the dividend payment isn’t increased from the last year, the company is removed from the index by S&P. Quarterly rebalancing of the index is carried out in the months of January, April, July, and October. In addition to stocks offering continuously rising dividend payments, the index includes stocks with and an average daily trading volume of minimum US $5 million and a float-adjusted market capitalization of minimum US $3 billion.

A minimum of 40 companies is required to be a part of the index, and as of June 29, 2021, there are 65 Dividend Aristocrats in the index. The list of dividend aristocrat companies includes names like Dover (NYSE: DOV), Genuine Parts (NYSE: GPC), Emerson Electric (NYSE: EMR), and 3M (NYSE: MMM), which have had dividend growth for over 60 years consecutively! These companies are a part of the Dividend Kings list in which there has to be a continuous increase in dividends for an incredible 50 years in a row.

On the other hand, companies such as NextEra Energy Inc (NYSE:NEE) and International Business Machines (NYSE:IBM) have joined the list recently in 2021 itself, with just 26 consecutive years of dividend growth.

Apart from offering higher dividend payments to the shareholders, the strength and value of dividend aristocrats also depends on their performance. Historically, the dividend aristocrat companies have surpassed the S&P 500 by around 1.8% per year and have exhibited somewhat less volatility as well.

A common criticism faced by the list of dividend aristocrats is that they sometimes use buybacks of shares to aid and expedite dividend increases. The best interest of the shareholders might not be taken into consideration by the company even with continuously increasing dividends if the company is overpaying for its shares. However, a real dividend aristocrat should make it a point to increase payouts to shareholders every year.

Investing in S&P 500 Dividend Aristocrats

The most popular way for gaining exposure to the list of dividend aristocrats is through the Exchange Traded Fund route. The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) is a low-cost index fund that makes it simple to own the full Dividend Aristocrats list. This along with the SPDR S&P Global Dividend ETF (WDIV) are some of the popular assets that directly follow the index. iShares Select Dividend ETF (DVY) and the iShares Core High Dividend ETF (HDV) are some of the other funds that track dividend stocks but don't directly follow the index. Each track some of the stocks that are a part of the dividend aristocrat index. 

How are dividend aristocrats selected?

To become and remain a part of the dividend aristocrats list, there are four main requirements.

Firstly, the company should be a member of the S&P 500.

Also, there should be a hike in per-share base dividend every year for a minimum of 25 consecutive years. This should not include special dividends.

Thirdly, the company should have a minimum float-adjusted market capitalization of at least $3 billion.

And lastly, it should have an average of minimum $5 million in daily share trading value for the three months earlier.