What Are Dividend Aristocrats and What You Need to Know About Them

If you have been looking at dividend investing as an income generating option you have probably run across the term “dividend aristocrat“.

The stocks carry a unique title, but often it is not explained as to what exactly a dividend aristocrat is.

Should this be a type of stock that a dividend investor should target? Or do you want to avoid Dividend Aristocrats?

What is a Dividend Aristocrat Stock?

What are dividend aristocrat stocks?

A dividend aristocrat stock is a stock that has raised its dividend to shareholders for a minimum of 25 years straight.  There are a limited number of stocks that make this achievement over a long period of time.

To consistently raise your dividend to investors every year for decades is a solid commitment to returning value to your shareholders.

Why Invest in Dividend Aristocrats?

It is great to get higher dividends as an investor, but is that the only reason to invest in these special stocks?

Investing with Dividend Aristocrats is not a “do this always” type investment; it depends on whether or not they fit into your strategy.

Here are three reasons to invest in Dividend Aristocrats:

1. Receiving Consistent Income from Dividends

Receiving consistent performance and income from an investment is a highly coveted attribute for many investors.

With Dividend Aristocrats you can look back on decades of consistent dividend payments and, in most cases, have a solid confidence you will receive the stated dividend in the coming years.  That consistency can make planning for investment income a lot easier which aids in portfolio planning for those needing income from their portfolio.

2. Raising Dividends Fight Inflation

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Another perk of a dividend aristocrat stock versus another dividend paying investment is not only are you getting the income, but these stocks have consistently raised their dividends through the years. This increase, no matter how slight, can help dividend investors fight back against the cutting impact of inflation.

As the cash you have in the bank goes down in value, the dividend payments increase to help offset that problem.

3. Surviving For Decades

One last perk is quite basic: to have raised your dividends to shareholders for years on end, you must survive in the brutal economy.

These stocks aren’t hot startups.  They are stable, blue-chip organizations that have stood the test of time.

Risks of Blindly Investing in Dividend Aristocrats

As great as the group of dividend aristocrat stocks are you can’t simply find the most recent list and divvy out your entire portfolio to them.

Failing Aristocrats at Risk

The list of Dividend Aristocrats is a group of great stocks that have been around for decades.  They have consistently payed out to their shareholders quarter after quarter, year after year.

But don’t just blindly drop your money into each stock.

You need to do a thorough analysis whenever you decide to invest in an individual stock.  A lot of research goes in before you put your money into the investment, and the same should hold true here.  The biggest risk with blindly investing in a dividend aristocrat stock is that the company is currently facing trying times that may result in dividend cuts or, at worse, serious stock price declines.

Just because a stock has done well for 25 years and raised its dividend doesn’t mean it might not be in the midst of drastic industry change that has caught it off guard.  Make sure you know what is going on with the company and what the odds are it will be able to stay on the dividend aristocrat list for the decades to come.

Remember, past performance is not indicative of future results.

Related: The Best Online Discount Brokers

Considering Tax Implications

As of this writing investing in dividends is a great way to avoid some investment income tax because the dividend rate is significantly lower than normal income tax rates.

However, that may not always be the case.

The Federal government can always change tax laws and as a result, tax dividends more heavily.  If this were to happen there would be great potential for the perceived value of dividend stocks to be lower than they were in the past.

If an investor is not going to get his return from the growth of the stock price of the stock, he will rely on the dividend payout.  Obviously, if the government takes away the ability to fully enjoy the dividend payout and the stock price growth isn’t there, some investors would flee the stock and drive the price down.

Final Thoughts

The companies that have consistently raised their dividend for 25 years or more make up the Dividend Aristocrats.  These firms should not be blindly invested in, but do warrant further research if you are in search of dividend income within your portfolio.

Remember, just because the history of the stock has resulted in dividend growth that is no guarantee that the future results will be similar.

Do you have any history investing in the Dividend Aristocrats?

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Published or updated March 6, 2013.

Comments

  1. I only invest in dividend paying stocks but there is no tax implication for me because I am such a small investor. I keep all my stocks dripping (reinvesting) in to my TFSA.

    It will be 12 or so years before I need the income for retirement so lets hope they continue to grow.

  2. I bought my first five individual dividend stocks a year and a half ago and they all came from the Dividend Aristocrats list. I love dividend investing and am eager to learn more, but I agree with you that you have to do your research. And while I’m glad that the tax rate on dividends didn’t go up for most people, your point that it won’t necessarily stay that way is a good one.

  3. I wonder if any ETF exists that cover the Dividend Aristocrats on your list? I’d be game for investing in that!

  4. I didn’t know that this list existed! I’m definitely going to do some research on them!
    Thanks =)

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