Dividend Aristocrats (The Complete Guide for 2017)

Dividend Aristocrats Cover for 2017You want to start dividend investing, but it’s hard to know where to begin.

There is roughly 3,000 dividend paying stocks in the United States alone.

That list doesn’t include all the global companies paying dividends.

So where does one start their search? With the Dividend Aristocrats.

You may be thinking “a fancy name like that must make them pretty special” and you’d be right.

The Dividend Aristocrats first have to be part of the S&P 500. That means they’re already one of the 500 largest companies in the US traded on the New York Stock Exchange.

Not only that, but the aristocrats must have increased their dividend payments every year for at least 25 years.

That narrows a list of 3,000+ stocks to a select group of 51 in 2017. The list changes every year as some get added and others fall off.

Through great markets and terrible markets, these dividend aristocrats have kept increasing their dividends.

Want to know who the Dividend Aristocrats are?

The Importance of Increasing Dividends

By increasing dividends, these companies are helping you fight inflation.

The long-term goal with dividend stock investing is to build an income snowball. With a large enough snowball, you can live off the passive income dividend payments.

A 3% annual inflation will eat away at the value of those dividends unless the company increases them with each year.

Think of it this way. Say you own a stock that pays you a $2 dividend. Not much but it allows you to buy a $2 candy bar.

Ten years down the road that $2 candy bar now costs you $2.70 because of inflation. That $2 dividend payment doesn’t buy what it used to.

This is why increasing dividend payments is so important. It helps support the relative value.

But there is also a hidden bonus. Stocks that increase their dividend payments also end up performing better.

Historical Performance

Increasing dividends are great, but you also want investments to do well.

The aristocrats have definitely performed well.

Over the years, the dividend aristocrats have outperformed the general market and not by a small amount.

Dividend Aristocrats perform better than the SP 500

A chart of how well aristocrats perform compared to the rest of the market

Over a 10 year period, the dividend aristocrats have beat the S&P 500 Index by about 2.64% annually.

To put that in perspective: say you invested $10,000 in an S&P 500 index and another $10,000 in a portfolio of aristocrats.

Your money in the S&P 500 would grow to $19,653. Pretty great.

The portfolio of dividend aristocrats would have grown to $25,078. Pretty awesome!

You made an extra $5,000!

A 2.64% difference could be thousands of dollars in extra savings. Which also means more passive income.

Great performing stocks are…great. But great performing stocks with low volatility and low risk are stellar!

Yet again, the dividend aristocrats deliver.

Risk of Aristocrats


The S&P 500 takes some big hits during recessions (2000-2002, 2008) but the aristocrats hold strong.

They still drop, but it’s not as bad as the rest of the market.

You want to see some resiliency out of a portfolio during the bad times.

Dividend aristocrats do better than the rest of the market for two reasons:

1)  They’re paying cash

These companies have already decided to reward their stock holders with dividend payments. They can’t be a company in the start-up phase of business. Cash is their blood supply, so they can’t be a business that is blowing through it to stay afloat. They can’t be taking risky bets.

This means their stock is going to be less risky.

2) They’re going to be selective

Because they can’t be reckless with their cash, these companies are going to play it safe. They’re going to be selective with their business investments.

Being smart with cash allocation is a hallmark of aristocrat companies. They know part of that money is going to investors in the form of dividends so they have to make good decisions with what’s left.

That decision-making process means added value to the investor.

Now you know how awesome dividend aristocrats are, so let’s talk about how to get started investing in them.

Building a Dividend Aristocrat Portfolio

You know the beauty of dividend aristocrats. You’ve got the list of 2017 companies.

Why is it you can’t start buying?

Diversification is the key. You’ve got to make sure you’re building a portfolio in such a way you don’t get burned.

Imagine you’ve bought 10 stocks for a total investment of $100.

Without paying attention to diversification, you could have $90 in one stock and $10 in the rest.

If that one stock with 90% of your money runs into problems and drops 20%, your portfolio is going to drop nearly 20% as well.

(1-0.2) * $90 = $72

That’s an $18 loss you took.

Instead, if you’d spread out that $100 evenly to 10 stocks, a 20% drop in one wouldn’t be as bad.

(1-0.2) * $10 = $8

Now it becomes a $2 loss.

There are three criteria you want to watch out for: sector balance, income balance, and value balance.

Sector Balance

Companies fall into a series of broad sectors. Whatever industry they serve places them in a business sector.

They are:

  • Consumer Cyclical
  • Industrial
  • Healthcare
  • Consumer Defensive
  • Technology
  • Financial
  • Basic Material
  • Utility
  • Energy
  • Communications
  • REITs

Part 1 of the aristocrats industry sectors

Part 2 of the aristocrats industry sectors

Part 3 of the aristocrats industry sectors

Often times the stocks in each sector will move together. This isn’t an exact science, but more a rule of thumb.

It’s best not to get too invested in one specific sector for the same reason as the example above.

Income Balance

The reason you’re building a portfolio of dividend aristocrats is to grow an income snowball.

With a bigger portfolio of dividend paying stocks, the more passive income you earn.

Because income is the end goal, you need to watch out for how much each stock is contributing.

Down the road, one stock could be providing 25% of your income and then they decide to shrink their payment. Or (gasp!) if they stopped paying dividends altogether, you’d have a serious problem!

Make sure you keep track of how much one stock pays for your total portfolio income.

You’d like to have all of them generating the same percentage of your total income.

Value Balance

The value of a stock is the stock price multiplied by how many shares you own. It’s constantly fluctuating and can change in large swings from day-to-day based on the stock price.

While the main goal is creating income, the bigger your snowball, the faster it grows, the more snow it can produce. (I.E. The larger your portfolio value, the faster the portfolio grows, the more income it’ll produce.)

You want to make sure the value of one stock doesn’t get too large compared to the value of others in the portfolio.

How Many Stocks in Your Portfolio?

So how many companies should you own stock in? That’s up to you.

You could own a bit of every dividend aristocrat and be fine.

But, that becomes a bit hard to manage for some people.

The ideal number lies somewhere around 30.

A study of 32 randomly selected stocks reduced the risk of a portfolio by 95% compared to a portfolio of every stock on the New York Stock Exchange.

That’s a pretty stellar reduction in risk and a much more manageable portfolio.

Rule of 3s

With a portfolio of roughly 30 stocks, you should be targeting the Rule of 3s:

  • 3 stocks from each sector
  • 3% of your total income from each stock
  • 3% of your total portfolio value in each stock

These are all rough estimates. Right now there aren’t even enough dividend aristocrats that are in the REIT sector to own three.  In this situation, try to keep the total value for each sector similar.

Things are going to change and fluctuate over time. That’s OK.

These numbers are more like the north star, there to help guide you in the right general direction.

A Rule of 3s portfolio isn’t going to give you the highest possible returns.  It’s going to ensure that you’ve got a low risk investment mix that provides safe passive income.

Global Aristocrats

The United States isn’t the only one with great companies that pay ever-increasing dividends.

Canada and other countries provide safe investments to grow your income snowball.

They’re worth considering to get even more diversification within your portfolio.

The Canadian Dividend All-Stars are a list of companies with five or more consecutive years of dividend increases. Download here.

The UK Dividend Champions are a list of companies with 25+ years of consecutive dividend increases.  They aren’t considered aristocrats because they aren’t part of the S&P 500.  Download here.

ETF Funds

If creating a portfolio of stocks doesn’t sound like fun, there are dividend aristocrat funds available.

You’ve got to be willing to pay a bit in fees, though. Even though the fees are small, they will hurt your return in the long run. Investing your money in a fund better than not investing at all, though. Put your money to work!

Funds make life easier because it means you only have to keep track of one thing, that fund. You can set up an automatic deposit and forget about.

Let someone else do the managing.

Some of these don’t follow the exact rules of a dividend aristocrat, but vary for one reason or another.

Dividend aristocrat funds with their yield and expense ratio

ProShares S&P 500 Dividend Aristocrats

ProShares S&P 500 Dividend Aristocrats sector weight vs. S&P 500

ProShares is the only one that follows the strict guidelines for being an aristocrat.

It only holds companies that are part of the S&P 500 and have increased dividends for the last 25 years.

If it can’t find 40 stocks that meet the criteria, it will branch out to companies with a shorter dividend growth history

SPDR S&P Global Dividend ETF

Top 10 countries that the global dividend fund are exposed to

Like I said, great dividend paying companies aren’t in the US. There are many global companies that can offer great passive income.

The S&P Global Dividend ETF isn’t a true dividend aristocrat fund, though.

While it looks for companies with rising dividends, it only requires 10 years of growing or stable dividend payments.

Which means the company could have maintained their payout without growing it and are still considered.

It also reduces the required length of time from 25 years to 10.

The fund selects the 100 highest paying dividend stocks that meet that criteria. No more than 20 can come from the same country.

ProShares S&P Midcap 400 Dividend Aristocrats

Sector weight vs. the S&P 500 for the MidCap 400 Dividend Aristocrat Fund

This fund is a slight variation on the traditional dividend aristocrat.

If you’re looking for some stocks with a little more growth opportunity and are hoping to see more value growth, this fund is for you.

Instead of looking to the S&P 500, this fund pulls from the S&P Midcap 400.

That’s group of smaller companies that are still in their growth phase. To build a fund, the guidelines get fudged.

Instead of looking to 25 years of dividend growth, this ETF only requires 15 years.

It’s also not pulling from the S&P 500.

SPDR S&P Dividend ETF

Sector Weight vs. S&P 500 for the SPDR S&P Dividend ETF

If you want the highest yielding dividend fund with a loose restriction on the dividend aristocrat guidelines, this is the choice.

The SPDR S&P Dividend ETF follows the S&P 1500 Composite Index for its pool of candidates. So instead of 500 companies, it has 1500 to select from. It then targets stocks with a dividend increase history of 20 years.

The fund tracks a yield-weighted list of 50 companies. Meaning they invest more money in stocks with higher yields and less in stocks with low yields.


There isn’t anything particularly amazing about the dividend aristocrats. A lot of them are pretty old and mundane.

Old and mundane is pretty great when it comes to investing.

Companies that you know are going to be around for the next 20 years are the types of companies you’re looking for.

While start-ups may grow faster and tech companies have cooler products, they can be risky.

You’re not looking for risk. You’re busy looking for income.

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