Dividend aristocrats and kings: Investing for the long haul
As an investor, you may be looking for stocks and exchange-traded funds (ETFs) that can provide you with a little extra value over the long term.
If you’re planning to hold shares of a company for the long haul, you might want to consider looking at the S&P 500 dividend aristocrats and dividend kings. These are stocks with long histories of ongoing growth and payouts on top of capital appreciation.
Key Points
- Dividend aristocrats consistently increase their shareholder payouts year after year for at least 25 consecutive years.
- Some dividend aristocrats are also dividend kings, which have increased payouts for 50 consecutive years.
- S&P 500 dividend aristocrats and dividend kings are generally large, relatively stable companies that can afford to increase payouts, even during difficult economic times.
What are dividend aristocrats?
Dividends represent a payout companies make to shareholders. A dividend is a portion of company profits that you get when you hold the stock. But dividend aristocrats take dividend paying up a notch. To make the dividend aristocrats list, a company generally needs to meet the following qualifications:
- Be included in the S&P 500 Index (essentially the top 500 U.S. companies by market capitalization).
- Increase the dividend paid to shareholders each year for 25 consecutive years.
Some investors screen for other characteristics, but those are the main requirements.
If a company misses a year of increasing dividends, it’s removed from the aristocrats list. It will take (at least) another 25 years to get back on the list.
The dividend kings list: The tippy top of the cream of the crop
Some companies aren’t just dividend aristocrats—they’re also dividend kings. These companies have leveled up their dividend game by increasing their payouts each year for 50 years. Some definitions let them get away with just 40 years, but to be true kings, many investors like to see 50 consecutive years of increases.
Dividend kings don’t necessarily have to be included in the S&P 500, although many of them are. Learn more about a dividend investing strategy.
Who’s on the dividend aristocrats list?
There are usually fewer than 100 companies on the dividend aristocrats list at any given time. At the start of 2024, there were close to 70 companies on the S&P 500 dividend aristocrats list, and 55 dividend kings.
A search online can help you find lists of current dividend aristocrats and dividend kings, as well as screen by other criteria. If you’re looking for the dividend aristocrats with the highest yields, for example, here are the top five as of February 2024:
- Walgreens Boots Alliance (WBA): 7.01%
- 3M Co. (MMM): 6.79%
- Realty Income Corp. (O): 5.95%
- Amcor PLC (AMCR): 5.60%
- T. Rowe Price Group Inc. (TROW): 4.67%
Dividend yield isn’t the only measure to consider. In fact, sometimes the current yield can be misleading, as it compares the current share price to previous dividends. If a company falls on hard times, and share prices fall, its current yield will look great—until the following quarter, when the company may choose to cut or even eliminate its dividend.
That’s exactly what happened to General Electric (GE) in 2019, a company that had previously enjoyed (mostly) steady growth in its dividends since the late 19th century. And Walgreens, which topped the list in early 2024, announced a dividend cut soon after. It was removed at the same time from the Dow Jones Industrial Average, and replaced by e-commerce and cloud computing giant Amazon (AMZN).
Longest-running dividend kings
Some investors appreciate dividend kings because of their long-running history of increasing dividends. There’s something to be said for a company that can increase its dividend each year, no matter what the economic conditions. Some investors see it as an indication of long-term stability. These companies often also have a track record of capital appreciation, meaning their share price is increasing.
Although 3M has been paying a dividend for 65 years, and Coca-Cola (KO) has been paying dividends for 61 years, these aren’t the longest-running. Here are the seven dividend kings that have been increasing their payouts the longest:
- American States Water (AWR): 69 years
- Dover Corporation (DOV): 68 years
- Northwest Natural Holding (NWN): 68 years
- Genuine Parts (GPC): 67 years
- Procter & Gamble (PG): 67 years
- Parker Hannifin (PH): 67 years
- Emerson Electric (EMR): 67 years
Many of these companies fall into the utilities and industrials sectors, as well as consumer goods. Some types of companies are more likely to have “cash cow” staying power—and offer a steady slice of their profits in the form of dividends.
Using dividend aristocrats in your investment portfolio
Adding dividend aristocrats to your portfolio can potentially add income or boost your portfolio’s growth, depending on your money goals:
- Portfolio growth. If you’re in the process of building your portfolio, adding dividend investments can help, especially if you reinvest those dividends. If you use your dividends to buy more shares each time you receive them, it becomes a cycle where your payout increases based on the number of shares you own. And then you can buy more shares.
- Income. Dividends can change, so dividend stocks aren’t exactly fixed-income securities (e.g., bonds and CDs that pay guaranteed interest over a fixed period). But you might start seeing significant income from your payouts once you have a solid selection of dividend stocks, or if you invest in a fund that targets income-producing stocks. If you build the dividend aristocrat portion of your portfolio over time, later on you might be able to use the income generated by dividends without having to sell shares.
- Retirement planning. It’s even possible to use your dividend aristocrats and dividend kings in retirement. If you use the three-bucket strategy, these assets might be considered in your medium-term bucket.
Dividend stocks vs. preferred stocks
When adding dividend kings and aristocrats to your portfolio, it’s important to note the differences between dividend stocks and preferred stocks. In many cases, you’re buying common shares when you invest in dividend stocks.
Although preferred stock pays dividends as well, those dividends are usually fixed. Even a dividend king might suddenly decide not to increase dividends, cut payouts, or stop altogether. Your dividends aren’t guaranteed, even with a stock on the dividends aristocrats list. Plus, your common dividend-paying stock is in a junior position. If something happens, you’ll only get your money after preferred stockholders have theirs.
How to invest in S&P 500 dividend aristocrats (and dividend kings)
If you’re ready to invest in dividend aristocrats, here are some steps you can take to get started:
- Open a brokerage account. You need a broker to help you access stocks, including dividend aristocrats. Look for a brokerage that works for you, with low transaction costs and low minimum investments. And if you’re starting small, you might need a broker that offers fractional share purchases.
- Use a screener to find dividend aristocrats. You can look for lists of dividend aristocrats and dividend kings, as well as use stock screeners that can help you compare different stock characteristics (see figure 1).
- Consider exchange-traded funds. ETFs can provide an easier way to invest in dividend stocks without choosing individual companies. Some ETFs have the themes of dividend aristocrats and dividend kings. They’ll pay dividends, and you only need to make one investment to get access to a swath of dividend-paying securities.
- Set up recurring investments. Most brokers offer automatic investing plans. You decide how much you want to invest each month. The money is automatically transferred from your bank account to the broker, and they invest it per your selected plan.
- Reinvest the dividends. Many brokers will automatically reinvest any dividends you receive free of charge. Sign up for dividend reinvestment to automatically grow your portfolio at an even faster rate.
The bottom line
Dividend investing can provide income and portfolio growth simply by holding on to good companies for a long time. When you choose dividend aristocrats and dividend kings, you boost the chances of securing ongoing payouts that increase over time, helping you potentially turbocharge your investment portfolio.
But remember: Aristocrats occasionally fall on hard times, and no dividend is guaranteed. So don’t count your chickens before they’re hatched, and don’t keep them all in one basket.