Explainer: What Are Dividend Aristocrats?

MARISSA HAYDEN
Content Producer · 21 July 2021

Dividend aristocrats are often referred to as the dividend royalty of the American exchanges and, as expected, are typically highly popular stock choices.

What is a dividend aristocrat?

To be classified as a dividend aristocrat, a company must be:

  • Listed on the S&P500 Index
  • Consistently paying and increasing dividends, for a period of 25 years or more
  • Largely resistant to downturns in the stock market (but like any stocks, there’s no guarantee of this)

Not easy criteria to meet, by any means, but as of June 2021, there were 65 companies listed as dividend aristocrats on the S&P500.

So which companies achieve Dividend Aristocrat status?

Startups don’t fall into this category due to their relatively short lifespans, but also the fact most startups will typically reinvest into their business to continue to achieve growth, as opposed to paying dividends. Many tech companies also adopt this strategy, so you won’t see the likes of Facebook or Amazon on the list.

Dividend Aristocrats are often viewed as ‘recession proof’; products that will still sell even in times of economic struggle. Some of the most recognisable names on the list include PepsiCo and Coca-Cola, which have increased their dividends for 49 and 59 years, respectively.

McDonald’s is also a dividend aristocrat, at the time of writing, their dividend yield was sitting 2.18% and have raised its dividends for 45 consecutive years. Manufacturing company 3M has enjoyed one of the longest tenures on the Dividend Aristocrat list, now sitting at 63 years of consistently increased dividends.

Source: Shutterstock by Lori Butcher

What is a Dividend Yield?

As it will be mentioned quite a bit in this article here is a refreshers on dividend yield.

A dividend yield is simply the percentage of dividend paid out relative to the share price. 

Dividend yield = annual dividend divided by share price

Does Australia have dividend aristocrats?

By the criteria above, no. No stocks listed on the Australian Securities Exchange has consistently increased its dividends for a period of 25 years or more, however, many do still have long track records of paying strong dividends.

Ramsay Health Care Limited (ASX: RHC) is the largest operator of Australian private hospitals. Ramsay Health Care was founded in 1964 and now operates across 11 countries. Since 2000, they have increased their dividends each year, with the exception of 2020 when the global pandemic was at its peak. However, a dividend was paid to investors in 2021. 

InvoCare (ASX: IVC) is a funeral provider, with nearly 300 locations across Australia. InvoCare was on it’s way to meeting the criteria for a dividend aristocrat, since 2004 it has consistently paid and increased its dividends. However, in the last few years they have made cuts to their dividend payout, which has sent them back to square one when it comes to dividend aristocrat status. 

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Other High Dividend Yield AU Stocks

While the below stocks don’t fall into aristocrat territory, these are some of the highest yielding dividend stocks of 2021.

AGL Energy (ASX: AGL)

AGL’s current dividend yield is 10.14%. 

Rio Tinto (ASX: RIO) 

This mining magnate’s current dividend yield is 7.46%

Harvey Norman (ASX:HNV)

Retail giant, Harvey Norman, currently has a dividend yield of 7.05%

JB Hi-Fi (ASX: JBH)

JB Hi-Fi is paying out a respectable dividend yield of 5.63%

What to consider before investing in dividend aristocrats

Due to their track records, dividend aristocrats are often considered ‘safe investments’, but this is not a guarantee. With companies that are currently paying a high dividend yield, but may have been doing so for a shorter period of time, it is important to be aware these dividend payouts may not be sustainable for the company. This may mean a risk of the company reducing the amount in dividends.

If dividend yield is an area you want to focus on, it may be worth considering investing in an ETF that focuses on high dividend yield, usually a strategy-based ETF. 

Whatever your investment strategy, if you’re ever unsure contact a professional finance advisor.

Originally authored by: Madeleine Kimber


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Marissa is the Content Producer for the Wealth team at Canstar, and specialises in investment content. Her previous experience has seen her create content for wide range of industries from travel to the legal sector. Follow Marissa on LinkedIn, and Canstar Investor Hub on Facebook.

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