What is a Dividend Aristocrat?
I have seen many questions related to dividend-paying stocks. One of the main ones is ‘What is a Dividend Aristocrat?’
Today we’ll look to answer that question as well as provide more detail on dividend stock classifications.
Dividend Aristocrats Explained
You might have heard the terminology, Dividend Aristocrat. You, like many others, might have an idea of what this means, but today we’ll take an in-depth look into what constitutes a Dividend Aristocrat, as well as a few other terms associated with dividend-paying stocks.
Many stocks choose to pay a dividend to shareholders. The reasons for this are many, but at the end of the day, dividends are paid to return profits and capital to existing shareholders.
In addition to dividend-paying stocks, I do own growth stocks and mutual funds focused beyond dividends, but the vast majority of my dividend portfolio is geared toward building up my holdings with solid, dividend-paying stocks.
The goal is to continue building my annual dividend income (ADI) through buying quality stocks that pay dividends, reinvest those dividends into existing positions through a DRIP program, and see my ADI continue to grow to a point where I can live off the dividends.
While some stocks may pay dividends when they make a profit, like Cal-Maine Foods ($CALM), other stocks will pay dividends as part of its stock profile, like AT&T ($T).
Stocks like AT&T, PG ($PG), Coke ($KO), and many others, elect to pay dividends to shareholders to make their stock more enticing for potential investors to own. These stocks obtain the coveted Dividend Aristocrat title.
Dividend Aristocrats set themselves apart in the world of dividend investing. These are stocks that have been paying growing dividends for the past 25+ years.
The word to key in on in the sentence above is ‘growing’. Many companies pay dividends but might end up cutting dividends or not growing their payments through tough economic times.
These type of stocks would no longer qualify for a Dividend Aristocrat status.
Dividend Aristocrats have been able to continue growing their dividend payments through challenging times – wars, economic bubbles, the mortgage crisis of 2008, etc. The fact that the divvies continued to be paid through thick and thin shows just how powerful the cash flow of these economic machines happen to be.
DripInvesting.org maintains an excellent spreadsheet called the ‘US Dividend Champions’ list. It was developed and formerly maintained by the now deceased David Fisch and has since been taken over by SeekingAlpha contributor Justin Law.
The Dividend Champion’s list is updated once a month on the last day of the month. It is an excellent list and a great starting point for any would-be investor in dividend stocks. I have now built out my own dividend screening tool, so I do not use the Dividend Champions list as much as I used to, but it is still interesting to review from time-to-time.
Included in the list are Dividend Contenders and Dividend Challengers.
Dividend Contenders are dividend stocks that have increased their dividend for 10 years or more, but less than 25 years, so they do not yet qualify for the coveted Dividend Aristocrat status.
Many of these stocks are on the verge of cracking the aristocrat status and may do so in the years ahead. Time will tell if or when these stocks will be to enter into the Dividend Aristocrat status.
Dividend Challengers are those stocks that have increased their dividends for 5-9 straight years but not yet over 10+ years.
The goal for many of these stocks is to achieve the Dividend Contender status, and, eventually the Dividend Aristocrat status.
Dividend Kings are those stocks that have raised their dividends for 50+ years.
It is an amazing feat for any company to attain and one that not many are able to do.
Dividend Kings have been able to cash flow for many, many years, and with that cash flow, increase their dividend payments to existing shareholders.
Many stocks can pay dividends, but to achieve any of the above statues, it takes dedication, cash flow, and great operational execution to continue paying dividends year-over-year.
For investors like me, I am always on the lookout to hold more great Dividend Aristocrats, Contenders, Challengers, and Kings that are paying great divvies and at well-valued prices.
Disclosure: I am/we are long $AAPL, $ADM, $BG, $BP, $BUD, $CALM, $CAT, $CMI, $CTL, $DAL, $F, $FAST, $GE, $GT, $JNJ, $IBM, $INGR, $KHC, $KO, $KSS, $MMM, $NWL, $PFE, $PG, $SBUX, $SJM, $SPTN, $STX, $T, $TSN, $UPS, $WFC, $WPC, $WRK, $WY, $XOM
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