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A Brief Look at Dividend Aristocrats

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Dividend aristocrats over the years

The S&P 500 Dividend Aristocrat Index is made up of 51 S&P 500 (SPY) (SPX-INDEX) companies that have increased their dividends for 25 successive years. Dividend aristocrats have beaten the conventional index with their higher risk-adjusted returns, which was possible due to lower volatility provided in part by the dividend. Risk-adjusted returns refer to the excess returns above the risk-free rate per unit of volatility. Dividend aristocrats have the highest exposure to consumer staples (XLP). Some of the constituents include C.R. Bard (BCR), S&P Global (SPGI), McDonald’s (MCD), Automatic Data Processing (ADP), and T. Rowe Price Group (TROW).

The S&P 500 has the highest exposure to IT (information technology) (XLK). Some of its constituents include Apple (AAPL), Microsoft (MSFT), Facebook (FB), Amazon (AMZN), and Johnson & Johnson (JNJ).

That explains the performance of the S&P 500 over the dividend aristocrats since 2016. The S&P 500 has a dividend yield of 2.4% at a PE (price-to-earnings) ratio of 21.7x.

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Other indexes with dividend aristocrats

Let’s look at some other indexes that include dividend aristocrats.

The S&P High Yield Dividend Aristocrats Index tracks companies in the S&P Composite 1500 that have increased their dividends annually for a minimum of 20 years. It has the highest penetration in financials.

The S&P/TSX Canadian Dividend Aristocrats Index monitors companies in the S&P Canada Broad Market Index (or BMI) that have increased their dividends annually for at least five years. It has the highest penetration in financials.

The S&P UK High Yield Dividend Aristocrats Index tracks the maximum dividend yielding UK companies in the S&P Europe BMI. It has the highest penetration in industrials.

The S&P/JPX Dividend Aristocrats Index monitors dividend-yielding companies in the Tokyo Stock Price Index (or TOPIX) with increased or sustained stable dividends for at least ten consecutive years. It has a highest penetration in consumer discretionary.

The S&P Euro High Yield Dividend Aristocrats Index tracks the highest dividend-yielding Eurozone companies within the S&P Europe BMI. It has the highest penetration in industrials.

The S&P Europe 350 Dividend Aristocrats Index monitors the S&P Europe 350 constituents that have increased dividends annually for at least ten successive years. It has the highest penetration in healthcare.

The S&P Pan Asia Dividend Aristocrats Index tracks the constituents in the S&P Pan Asia BMI that have increased dividends annually for a minimum of seven years. It has the highest penetration in real estate.

The iShares International Select Dividend (IDV) has a dividend yield of 4.2% at a PE multiple of 13.5x. It has the highest exposure to financials. The Vanguard High Dividend Yield ETF (VYM) offers a dividend yield of 2.9% at a PE multiple of 21.6x. It is a diversified ETF.

In the next part of this series, we’ll look at the top ten dividend aristocrat stocks in the order of dividend yield.

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