Why Investors Should Consider Dividend Aristocrats
Dividend aristocrats, companies that have hiked their distributions for at least 25 years, are back in fashion—and for good reason. Stocks entered 2022 on a tear, with the S&P 500 hitting a new record high of $4,818.62 on January 4.
Wall Street was expecting that momentum to continue, but it didn’t. Economic headwinds—including decades-high inflation, rising interest rates, concerns about a recession, supply chain issues, and ongoing geopolitical tensions—have led the stock market to crumble since then.
By mid-June, the S&P 500 had tumbled by approximately 25%. It has recovered a little since then, but it’s still in bear-market territory, down by roughly 22% year-to-date. With interest rates still on the rise and inflation stubbornly high, there’s no reason for the stock market to rebound. This means investors will face additional uncertainty and volatility.
What’s the best way to face an unprecedented economic storm?
It’s not by sitting on the sidelines. The best way to seek financial shelter is with shares of big companies that not just provide reliable dividends, but have a history of raising their payouts year after year. Companies that pay reliable quarterly or monthly dividends show investors that they have a mature business that makes a lot of money. Not only that, but they expect to continue to perform well.
Then there are the dividend aristocrats. Companies with a history of raising their dividends, even during terrible economic periods (e.g., recessions, wars, pandemics), have been saying they’re doing well and are confident about the future. Dividends are essentially a reflection of a company’s economic success.
Investing in companies that raise their dividends is a great way to fight inflation and stock market volatility. With inflation at 40-year highs, purchasing power erodes a little bit each day. The difference between the interest generated from a typical savings account and the amount of money needed to beat inflation has rarely been greater. Investing in stocks with proven dividend growth is better than leaving that money on the sidelines where it gets eroded by high inflation.
That doesn’t mean dividend aristocrats don’t face economic hardships, but their dividends help investors ride out near-term volatility. Because dividend aristocrats tend to be giant companies, their stocks have a history of rebounding from market lows more quickly than the stocks of smaller, less-established companies.
When it comes to passive income growth and underlying stock market growth, one of the best things investors can do is look at dividend aristocrats.
Furthermore, one of the best ways to generate additional income from dividend stocks is to reinvest the dividends. Over time, the reinvested dividends give an investor a larger number of shares, which in turn generates additional payments every quarter. Since 1945, reinvested dividends have contributed 33% of the total returns of the S&P 500. (Source: “How to Boost Your Portfolio ‘Without Doing Anything,’ From a Chief Investment Strategist: You Can ‘Improve Your Performance by a Third’,” CNBC, September 9, 2022.)
List of 20 Highest-Yielding Dividend Aristocrats
Here are the 20 highest-yielding dividend aristocrat stocks (as of this writing).
| Company Name | Stock Ticker | Sector | Dividend Yield | # of Years of Dividend Increases |
| VF Corp | NYSE:VFC | Consumer Cyclical | 7.1% | 50 |
| Leggett & Platt Inc | NYSE:LEG | Consumer Cyclical | 5.3% | 51 |
| Walgreens Boots Alliance Inc | NASDAQ:WBA | Health Care | 5.3% | 47 |
| Franklin Resources, Inc. | NYSE:BEN | Financial Services | 5.1% | 42 |
| IBM | NYSE:IBM | Technology | 4.9% | 27 |
| Realty Income Corp | NYSE:O | Real Estate | 4.8% | 26 |
| 3M Co | NYSE:MMM | Industrial | 4.7% | 64 |
| T Rowe Price Group Inc. | NASDAQ:TROW | Financial Services | 4.5% | 36 |
| Federal Realty Investment Trust | NYSE:FRT | Real Estate | 4.3% | 55 |
| Stanley Black & Decker, Inc. | NYSE:SWK | Industrial | 4.2% | 55 |
| AbbVie Inc | NYSE:ABBV | Health Care | 4.1% | 51 |
| Essex Property Trust Inc | NYSE:ESS | Real Estate | 4.0% | 27 |
| Kimberly Clark Corp | NYSE:KMB | Consumer Defensive | 3.7% | 50 |
| Consolidated Edison, Inc. | NYSE:ED | Utilities | 3.6% | 48 |
| Clorox Co | NYSE:CLX | Consumer Defensive | 3.4% | 45 |
| Exxon Mobil Corp | NYSE:XOM | Energy | 3.3% | 40 |
| Chevron Corporation | NYSE:CVX | Energy | 3.1% | 45 |
| Medtronic PLC | NYSE:MDT | Health Care | 3.1% | 45 |
| Coca-Cola Co | NYSE:KO | Consumer Defensive | 3.0% | 60 |
| Procter & Gamble Co | NYSE:PG | Consumer Defensive | 2.8% | 66 |
The Lowdown on Dividend Aristocrats
The recent stock market volatility is a reminder that, during times of extreme volatility, it pays to invest in companies that reward you for your patience. Bond yields might be up, but dividend investing has been taking center stage, especially when it comes to blue-chip stocks that provide steady, growing payments.
And it doesn’t matter what your investing horizon is. For short-term investors, monthly or quarterly dividends provide cash. For buy-and-hold investors, dividends can be reinvested, which leads to the accumulation of more shares.
It makes sense that investors are currently paying more attention to “boring” blue-chip dividend stocks, especially those with a history of rising payouts. If any company can raise its dividend in the current economic environment, it’s probably financially stable.