Explainer: What Are Dividend Aristocrats?

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, and what we’ve seen in markets recently, there’s no guarantee of this)

Not easy criteria to meet, by any means, but as of August 2022, 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 because 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, its 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.

What is a Dividend Yield?

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

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

Dividend yield = annual dividend by the share price

Does Australia have dividend aristocrats?

Using the criteria above, the short answer is no. No stocks listed on the Australian Securities Exchange have consistently increased their 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 its 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 technically 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 9.34%.

Rio Tinto (ASX: RIO)

This mining magnate’s current dividend yield is 8.60%

Harvey Norman (ASX:HNV)

Retail giant, Harvey Norman, currently has a dividend yield of 7.28%

JB Hi-Fi (ASX: JBH)

JB Hi-Fi is paying out a respectable dividend yield of 6.33%

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 the 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.

Compare Strategy Based ETFs with Canstar

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

Originally authored by: Madeleine Kimber

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This article was reviewed by our Content Producer Isabella Shoard before it was updated, as part of our fact-checking process.

Marissa Hayden

Content Producer

Marissa is the Content Producer for the Wealth team at Canstar, and specialises in investment content. She enjoys simplifying complex financial concepts and jargon for the ‘everyday’ Australian investor. Follow Canstar Investor Hub on Facebook.

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