Aristocratic Dividend Companies includes all of those companies that have increased the dividend uninterruptedly over the years. They are usually highly consolidated companies, with very solid financial management and that have managed to overcome the crises of recent years. But to become aristocratic dividend companies, they must pass a filter. Depending on which area we are in, it may or may not be stricter. But all of them have the strong characteristic of not having reduced their dividend.
So important and sought after are these companies, that there is a list with them in which we can even find ETF's. Have and their own stock index has been made, and one of the ways in which you can invest in them is also to replicate the behavior. But is it really a good option? Or is it just another sector as it could be any other? To understand everything that surrounds these companies and how to profit from them, pay attention to the following lines. At least for sure, you will discover some new things and a broader vision of the market itself.
What companies are considered Dividend Aristocrats?
Also known as Dividend Aristocrats, they are companies that have maintained or increased the dividend over the years. In addition, one of the characteristics that revolve around them is that the index of which they are part, the "S&P 500 Dividend Aristocrats" performed better more or less regularly. Since 1991, the S&P 500 has returned an average of 11% compared to the 13% average for the S&P 500 Dividend Aristocrats Index. That is, 2% higher than the index par excellence.
To be part of this select index of companies, the requirements to be met would be the following:
- Trading on the S&P 500.
- Have increased the dividend in the last 25 years.
- Meet minimum size and liquidity ratios.
Each year the list of companies in the S&P 500 Dividend Aristocrats changes due to the rotation of companies. That is, there are years in which some leave the index and others enter, depending on the performance they have had. Not because they are big, they have the position won. The soundness, consistency and financial performance too they are criteria that are taken into account to assess which one can be included in the list. Not for this reason, the companies that have increased the dividend every year, can continue in the same disposition to continue doing so. Having constant growth, belonging to sectors less cyclical than others, visible levels of profitability and cash flows for the long term can "guarantee" their continuity.
Aristocratic Dividend Companies in Europe?
In the case of Europe, the most prominent requirement with respect to the US S&P 500 is that the minimum number of years of dividend increase is 15. Like the others, if any of these companies ends up reducing it, it is automatically expelled from the list.
For the UK, you have a separate Dividend Aristocrats list. The minimum requirement for the UK is 10 years. The Pay-Out for these companies would be below 100% in order not to be excluded from the lists.
The criterion of "admission" in Europe generates some controversy for this type of company since there is not one of predefined really. It is not the same follow-up that exists in North American stocks as in those in Europe. This generates certain discrepancies on the values to be chosen. Furthermore, the fact that it takes fewer years for their admission means that the "quality" of these companies may not be as good. This does not mean that they are bad, only that comparing a company with increases for 10 years to others that even reach 50 years, does not make sense. The latter have gone through recessions and crises, overcoming obstacles and learning to navigate the future.
What mechanisms are there to invest in these companies?
We can invest in them directly buying the shares. Just search for the companies belonging to the index or Dividend Aristocrats list. Some of the companies that we can find among them are well known. From there, according to the criteria of each one, and if we give more importance to the history, the distributed percentage, the Price Benefit Ratio at which it is listed, etc. We will opt more for some companies than others. Some examples include Coca Cola, 3M, Exxon Mobil Corp, McDonald's, PepsiCo, Colgate - Palmolive ... Among the best known.
In the case of European companies, we have some such as Danone, L'Oreal, Imperial Brands PLC, Inditex or Bayer among the best known.
Another modality would be through ETF's. There are Exchange Traded Funds that attempt to track the S&P 500 Aristocratic Dividend Index. Some of the ones we can find are:
- ProShares S&P 500 Dividend Aristocrats ETF - This ETF replicates the index in Dollars. It can be found under the ticker «NOBL».
- SPDR S&P 500 US Dividend Aristocrats UCITS ETF Dis (EUR) - This ETF replicates the index in Euros, for example, as it is listed on the Milan Stock Exchange. Under the «USDV» ticker, we can also find it in Pounds or Swiss Francs, depending on where it is listed and the currency that interests us.
- SPDR S&P Euro Dividend Aristocrats UCIT ETF (EUR) - For companies listed in the Europe area and in Euros. This ETF can be found under the «EUDI» ticker.
What can you expect when investing in these companies?
Like any investment, the past is no guarantee of future benefits. For this reason, perhaps the good thing would be to diversify investment, between sectors and countries, or in the more global case, ETFs would position themselves as a good mechanism. The set of companies that belong to each index of Aristocratic Dividend Companies performed well in the past. They are not so susceptible to "bubbles", and "endure" recessions without being so affected, in quotes because although less severely they also suffer the effects.
In a timely manner, we can see how some of them is put at a more attractive price. Either due to a crisis in the sector to which they belong, or due to a reputational crisis for a product. These scenarios, if well evaluated, usually present good entry opportunities.
