What Is The Difference Between Dividend Kings and Aristocrats?

Difference Between Dividend Kings and Aristocrats: There are no sure things when it comes to the stock market. World events, economic catastrophes, and mismanagement can derail even the strongest companies, and portfolio balances can plummet with very little warning.

Some investors attempt to build their wealth by picking the next big thing. They try to identify the next Amazon, Apple, or Microsoft, then they buy stock in the most promising startups. The plan is to sell high when share prices skyrocket, but unfortunately, success stories resulting from this strategy are relatively rare.

The only reliable method of building wealth through the stock market involves time and patience. It comes from buying quality stocks at a reasonable price and holding them long-term while their value grows.

Patiently waiting for shares to increase in value is an important part of the equation, but it isn’t the only factor to consider. If those shares are increasing in value and paying dividends along the way, returns are amplified considerably.

That brings up a lot of important questions – for example, what is a “good” dividend and how can investors be sure dividends will be paid reliably over time?

The answer is simple.

Though there are no guarantees, companies with a long history of paying dividends – especially if those dividends increase regularly – are most likely to continue paying profits out to shareholders.

Companies that have managed to achieve the prestigious Dividend Aristocrat or Dividend King title are excellent candidates for investors who prioritize dividends because they have demonstrated their commitment to shareholders for decades.

What Is A Dividend Aristocrat?

The Dividend Aristocrats are an elite group of businesses that meet three criteria.

First, they are members of the S&P 500 – an index that tracks 500 of the largest publicly-traded companies in the United States.

Second, Dividend Aristocrats don’t just pay dividends to shareholders every year – those dividends must increase every year without fail.

Third, Dividend Aristocrats only qualify for this status if they have met the first two requirements for 25 consecutive years.

Needless to say, there are plenty of obstacles that can get in the way of dividend payments – and even more that can make it impossible to increase payments for 25 consecutive years.

Over a quarter of a century, companies face varying economic conditions, and they must have the resources necessary to survive and thrive in the face of recessions, market crashes, inflation, war, pandemics, and natural disasters. That’s not easy for any business – even those that hold a leadership position in their respective markets.

For example, AT&T, a longtime member of the Dividend Aristocrats list, lost its status in 2022 after paying the same dividend in 2021 as it did in 2020. That ended a 35-year streak of increasing dividends every year, and shareholders are thoroughly disappointed.

While AT&T is likely to continue paying dividends, there is less incentive for annual increases now that the reputational damage is done.

There are just 65 Dividend Aristocrats for 2022, and there have never been more than 100 in any given year. Considering the effort that goes into getting on and staying on the list, Dividend Aristocrats are a smart choice for those who prioritize income-generating investments.

What Is The Highest Paying Dividend Aristocrat?

If the goal is to bring in passive income from dividends, it makes sense to buy the Dividend Aristocrat stocks with the highest yields. These are the some of the highest paying Dividend Aristocrats for 2022:

This list includes a mix of industries ranging from real estate to technology, so it is possible to craft a diversified portfolio entirely around Dividend Aristocrats.

What Is A Dividend King?

Dividend Kings are ever more uncommon than Dividend Aristocrats. There are fewer than 40 companies that made the list as of early 2022.

That’s because Dividend Kings are the best of the best – the rare elites who have increased dividends for 50 or more consecutive years.

It is also worth noting that PepsiCo is on the cusp of Dividend King status – it just celebrated its 49th consecutive year of dividend increases.

Do Dividend Aristocrats Outperform The S&P 500?

There is a link between making onto the Dividend Aristocrats list and exceptional performance. After all, it wouldn’t be possible to maintain annual dividend increases if the company lacks the financial resources to pay profits to shareholders.

Dividend Aristocrats invariably have strong balance sheets, and their leaders are committed to thoughtful, practical fiscal governance.

It should come as no surprise, then, that the Dividend Aristocrats outperform the S&P 500 by a small margin over time – for example, ten years or more.

If smaller windows are considered, the gap widens in favor of the Dividend Aristocrats during bear markets, as those periods are marked by investors’ renewed interest in stable, low-risk stocks.

Are There Dividend Aristocrat ETFs?

The list of Dividend Aristocrats is short relative to the 500 companies that make up the S&P 500 or the thousands of publicly-traded stocks on US exchanges. However, for an investor, a list of that size can feel daunting.

Fortunately, there is no need to choose between individual Dividend Aristocrat stocks or Dividend King stocks. The ProShares S&P 500® Dividend Aristocrats ETF matches the Dividend Aristocrat index, giving investors exposure to all of the Dividend Aristocrats in a single share.

A variety of other ETFs focus on delivering returns through dividends, though they don’t necessarily limit holdings to Dividend Aristocrats. Examples of ETFs that prioritize dividends include:

Though each of these ETFs has a slightly different objective, the underlying goal is to ensure shareholders build wealth through income investing.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.