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.

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 stockmarket (but like any stocks, there’s no guarantee of this)

Not easy criteria to meet, by any means, so as of 2019 there were just 57 companies listed as dividend aristocrats among 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 – as opposed to paying dividends – to continue to achieve growth.

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 47 and 57 years, respectively.

McDonald’s is also a dividend aristocrat, now sitting at a dividend yield of 2.3% and having raised its dividends for 43 consecutive years. Manufacturing company 3M has enjoyed one of the longest tenures on the Dividend Aristocrat list, now sitting at 61 years of consistently increased dividends.

Source: Shutterstock by Lori Butcher

What is a Dividend Yield? A dividend yield is simply the percentage of dividend paid out relative to the share price. 

Dividend yield = annual dividend divide 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.

InvoCare (ASX: IVC) is a funeral provider, with nearly 300 locations across Australia. With an aging population, the service is in demand in Australia (sorry if that is a little grim) and while a tough 2018 slightly dented dividend payments, InvoCare are still providing a healthy dividend yield at 2.82%.

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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 2019.

Westpac Banking Corp (ASX: WBC)

Westpac currently offers the highest dividend yield at 7%.

Commonwealth Bank of Australia (ASX: CBA)

CBA follows behind Westpac at 5.31% dividend yield.

BHP Group (ASX: BHP) and Rio Tinto Limited (ASX: RIO)

BHP and Rio Tinto both benefited from strong ore prices in 2019, with BHP trading on a dividend yield of 4.85% and Rio Tinto at 4.13%.

Wesfarmers Ltd (ASX: WES)

Increased profits from Officeworks and Bunnings may have contributed to Wesfarmers’ healthy dividend yield – trading at 4.13%.

Considerations

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.

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