Finding the right stocks to invest in is a difficult task for a beginner. When you’re looking into dividend investing (as opposed to growth investing) you need to make sure the companies you pick will continue to pay and increase their dividends throughout the years. You might want to take a look at the list of dividend aristocrats.
Dividend aristocrats are companies listed on the S&P 500 Index that have increased their yearly dividend payouts for at least 25 consecutive years. Keep in mind companies are in no way obligated to pay out dividends. Just because you receive a dividend this year does not mean you will get a dividend next year.
Dividend investing is one of my 6 passive income ideas
I will be focusing on in 2021.
You should consider putting dividend aristocrats in your dividend investing portfolio.
Smart dividend investing really does… pay dividends in the long run. That’s why you need to look for stocks who a) have been paying out dividends for a long time, and b) have been increasing those dividends every year.
Cue the dividend aristocrats. These companies have a proven track record when it comes to paying (and increasing) dividends. Does that mean every dividend aristocrat is a good choice to invest your money in?
Not necessarily. While raising a dividend for 25 consecutive years is impressive, you need to look at other metrics before you decide to buy a stock or not.
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Important factors to classify dividend aristocrats
There are many more factors to consider when you’re looking to buy a stock, but as a dividend investor, the following two are the first ones I look at to make a quick, primary selection.
Dividend Growth Rate
Receiving a notification that one of the stocks in your portfolio has increased its dividend is a great feeling. Imagine the feeling when you find out the increase is just $0.01 for the upcoming year. The dividend growth rate is the percentage increase of the new dividend compared to the previous one. Ideally, you’d want to take a look at the annual growth rate of a stock over a 5-year or 10-year period.
Let’s take a look at one of the stocks I own in my dividend investing portfolio, AbbVie ($ABBV). In 2020 they paid out $1.18 per share per quarter. That’s a total of $4.72 per share. On October 30, the company announced they would increase their 2021 dividend to $1.30 per share per quarter, for a total of $5.2 per share.
That is an impressive 10.2% increase year-over-year. But maybe this year was a fluke? Maybe last year the dividend only increased 2%? That’s why we look at a longer period of time, to make sure the increase is in line with the history of the company.
| ABBV | $/share | YoY change |
| 2021 | $ 5.20 | 10.2% |
| 2020 | $ 4.72 | 10.3% |
| 2019 | $ 4.28 | 19.2% |
| 2018 | $ 3.59 | 40.2% |
| 2017 | $ 2.56 | 12.3% |
When we look at the year-over-year increases of AbbVie dividends over the last five years, we can see double-digit growth every year. So far so good.
Even though AbbVie officially only has 7 years of increased dividends, it is counted as a dividend aristocrat, as it used to be part of Abbot Laboratories that has been increasing dividends for decades.
Stock price and dividend yield
The problem with statistics is that we can make them say what we want them to say. If you only look at the dividend growth rate, we could be passing on good stocks. Even worse, we could be focusing on and buying the wrong stocks.
Allow me to demonstrate how only looking at the dividend growth rate isn’t a good idea. I’ll use another example from my dividend investing portfolio, Apple ($AAPL).
Before we dive in, Apple is not a dividend aristocrat. The company only started paying dividends again in 2012. Apple stocks currently pay out $0.82 per year per share.
Looking at the average dividend growth over the last 5 years, we see a yearly increase of 10.5%, around half of AbbVie’s growth (20.86%). Still, it’s double-digit growth, and that’s certainly something you want to keep an eye out for.
So both stocks look like a good dividend investment based on the dividend growth rate. Then what’s the big difference between these two stocks? It’s the dividend yield.
| Ticker | Last Close | Dividend | Yield |
| AAPL | $ 128.70 | $ 0.82 | 0.64% |
| ABBV | $ 104.89 | $ 5.20 | 4.96% |
AbbVie pays out more than 6 times the amount that Apple pays out, and has a lower stock price. These factors are what make the difference between the yield percentages.
Does that mean we shouldn’t even consider buying Apple? Absolutely not! Apple stock price has been rising since forever, and that makes it a good addition to your dividend portfolio, thanks to the growth potential.
Did you know Apple was the first US company ever to reach a 2 trillion dollar market cap earlier this year? They doubled their market cap from 1 trillion dollars in only two years.
Full list of all dividend aristocrats
At the time of writing this article, there are 65 companies that have been added to the dividend aristocrat list. The stocks highlighted in red are in my personal dividend portfolio.
| Ticker Symbol | Company | GICS Economic Sector |
| MMM | 3M Company | Industrials |
| AOS | A.O. Smith | Industrials |
| ABT | Abbott Laboratories | Health Care |
| ABBV | AbbVie Inc. | Health Care |
| AFL | Aflac | Financials |
| APD | Air Products & Chemicals Inc | Materials |
| ALB | Albemarle Corporation | Materials |
| AMCR | Amcor plc | Materials |
| ADM | Archer Daniels Midland | Consumer Staples |
| T | AT&T | Communication Services |
| ATO | Atmos Energy | Utilities |
| ADP | Automatic Data Processing | Information Technology |
| BDX | Becton Dickinson | Health Care |
| BF-B | Brown-Forman (Class B shares) | Consumer Staples |
| CAH | Cardinal Health Inc. | Health Care |
| CARR | Carrier Global | Industrials |
| CAT | Caterpillar Inc. | Industrials |
| CVX | Chevron Corp. | Energy |
| CB | Chubb Limited | Financials |
| CINF | Cincinnati Financial Corp | Financials |
| CTAS | Cintas Corp | Industrials |
| CLX | The Clorox Company | Consumer Staples |
| KO | Coca-Cola Co | Consumer Staples |
| CL | Colgate-Palmolive | Consumer Staples |
| ED | Consolidated Edison Inc | Utilities |
| DOV | Dover Corp | Industrials |
| ECL | Ecolab Inc | Materials |
| EMR | Emerson Electric | Industrials |
| ESS | Essex Property Trust | Real Estate |
| EXPD | Expeditors International of Washington | Industrials |
| XOM | Exxon Mobil Corp | Energy |
| FRT | Federal Realty Investment Trust | Real Estate |
| BEN | Franklin Resources | Financials |
| GD | General Dynamics | Industrials |
| GPC | Genuine Parts Company | Consumer Discretionary |
| HRL | Hormel Foods Corp | Consumer Staples |
| ITW | Illinois Tool Works | Industrials |
| JNJ | Johnson & Johnson | Health Care |
| KMB | Kimberly-Clark | Consumer Staples |
| LEG | Leggett & Platt | Consumer Discretionary |
| LIN | Linde plc | Materials |
| LOW | Lowe’s Companies, Inc. | Consumer Discretionary |
| MKC | McCormick & Company | Consumer Staples |
| MCD | McDonald’s | Consumer Discretionary |
| MDT | Medtronic | Health Care |
| NUE | Nucor | Materials |
| OTIS | Otis Worldwide | Industrials |
| PNR | Pentair | Industrials |
| PBCT | People’s United Financial | Financials |
| PEP | PepsiCo | Consumer Staples |
| PPG | PPG Industries | Materials |
| PG | Procter & Gamble | Consumer Staples |
| RTX | Raytheon Technologies | Industrials |
| O | Realty Income | Real Estate |
| ROP | Roper Technologies | Industrials |
| SPGI | S&P Global (formerly McGraw Hill Financial, Inc.) | Financials |
| SHW | Sherwin-Williams | Materials |
| SWK | Stanley Black & Decker Inc. | Industrials |
| SYY | Sysco | Consumer Staples |
| TROW | T. Rowe Price | Financials |
| TGT | Target Corporation | Consumer Discretionary |
| VFC | VF Corporation | Consumer Discretionary |
| WBA | Walgreens Boots Alliance | Consumer Staples |
| WMT | Walmart | Consumer Staples |
| GWW | W. W. Grainger | Industrials |