The Dividend Aristocrats list contains companies in the S&P 500 Index that have increased dividends every year for the last 25 straight years. Dividend Aristocrats are large cap, blue chip companies from many different industries, but they have all demonstrated a healthy balance between capital growth and dividend income.
Why do investors care so much about Dividend Aristocrats? Not surprisingly, stocks that have been able to increase their dividends for such a long period of time often have very durable businesses, have exhibited earnings growth, and have done quite well compared to the market.
Performance of the Dividend Aristocrats List
As seen below, the S&P Dividend Aristocrats Index has nicely outpaced the S&P 500 over the past decade. According to S&P, Dividend Aristocrats generated an annualized return of 10.2% over the past 10 years, easily topping the market’s 7.2% rate. Over this period, dividends accounted for 31% of the market’s total return, highlighting their importance in determining total shareholder return.
Blue chip dividend stocks are often characterized by outperformance during down markets. The following chart displays annual returns for Dividend Aristocrats alongside annual returns for the S&P 500. As you can see, dividend aristocrats fell about 22% in 2008 but significantly preserved shareholders’ capital when compared to the S&P 500’s 37% plunge.
Impressively, dividend aristocrats more than kept pace with the market in the years following the financial crisis. Outperforming in down markets and keeping up in up markets results in attractive risk-adjusted returns. Dividend aristocrats have a 13.8% standard deviation over the last 10 years, demonstrating lower volatility than the S&P 500, which recorded a 14.9% standard deviation over the same period.