Dividend Aristocrats are companies that have raised their dividend rates at least once every year, for a minimum of the previous 25 years.
More precisely, they constitute the S&P High Yield Dividend Aristocrats Index, an official index of the 50 highest dividend stocks in the S&P Composite 1500. This Dividend Aristocrat Index is maintained by Standard & Poor.
Investors can track the performance of the Dividend Aristocrats online, via the Standard & Poor’s Dividend Aristocrats page. Also, an Exchange Traded Fund (ETF) exists—the SPDR S&P Dividend ETF—that’s designed to mirror the behavior of the S&P Dividend Aristocrats Index. It trades under the symbol SDY.
Income investors seeking safety and a steady stream of income gravitate toward the Dividend Aristocrats. However, these stocks can’t be bought and blindly maintained on automatic pilot, because extreme events can cause even the aristocrats to fall out of favor.
For example, during the Great Recession of 2008-09, many financial institutions once considered to be rock-solid dividend plays were dumped from the list. If a company fails to increase its dividends from the previous year, it is removed. This is what happened during the recent economic downturn and financial meltdown, when brand-name companies ordinarily associated with dividend stability were cut, notably Bank of America (BAC).
Typically, a so-called Dividend Aristocrat is, by its very nature, a large and relatively stable blue-chip company with a healthy balance sheet. A Dividend Aristocrat is considered the “gold standard” for dividend stocks and, as such, income investors seek them out. Many of the companies on the list are household names with storied pasts and ubiquitous brands, such as McDonald’s (MCD) and Coca-Cola (KO).