The Dow's Dividend Aristocrats

Over the next few weeks I'll be taking an in-depth look at each one of the Dow Jones Industrial Average's (DJINDICES: ^DJI  ) nine dividend aristocrats. What makes for an aristocrat, which Dow components are a part of this elite group, and why so investors need to know about these stocks? Let's take a closer look.

What does it mean to be a dividend aristocrat?
A dividend aristocrat is a company that has for at least 25 years consecutively not only paid a dividend but also increased it once or more a year during that period. Over the past quarter-century, the U.S. has been in a number of recessions, economic downturns, and years of slow growth, but these companies managed to continue not only making money, but also giving capital back to their shareholders.

When the U.S. or even world economies are firing on all cylinders, it's easy for companies to come in and increase their dividend one or two years in a row, but to do it for at least 25 years straight -- and as you'll soon see, most have done it much longer than that -- takes a certain type of management team and company philosophy to keep the business in a financial position where it can continue increasing its payouts.

Who are the Dow's aristocrats?
Currently, nine of the Dow's only 30 components are dividend aristocrats, while only 54 of the S&P's 500 stocks are part of the group. Let's review the Dow's nine aristocrats.

Company Name

Year Started Increasing Dividend

Current Dividend Yield

3M (NYSE: MMM  )

1959

2.3%

AT&T (NYSE: T  )

1985

5.1%

Chevron

1988

3.4%

ExxonMobil

1983

2.8%

Johnson & Johnson (NYSE: JNJ  )

1963

3.1%

McDonald's

1977

3.1%

Procter & Gamble (NYSE: PG  )

1957

3.1%

Coca-Cola

1963

2.8%

Wal-Mart

1975

2.5% 

These companies have a few things in common. They're consumer oriented, offering products that everyone uses on almost a daily basis, so even though they may experience a slowdown during tough economic times, they won't be in danger of going out of business simply because the economy takes a downturn. Most Americans would agree that it would be difficult to live without the things these companies produce. Procter & Gamble, 3M, and Johnson & Johnson, for example, all sell products we use nearly every day of our lives, whether it be home cleaning products, office supplies, or a Band-Aid when your child scratches his knee.

And since these companies have proved in the past that they can live through tough economic times and still give back to their investors, these are the types of stocks we want to own and live on during retirement. During the later years of our lives, a quarterly dividend check may be a large and important part of your income, and if it's coming from one of the aristocrats, you'll probably sleep a little better at night knowing the track record of the company your income is coming from. Just consider the healthy returns from these companies and their very safe yields. AT&T leads the way with a very respectable 5.1%, while the low end of the nine Dow aristocrats is 3M at 2.3%, while Procter & Gamble and Johnson & Johnson are both at 3.1%.

In fact, when we compare these stocks with what most investors call the safest return, a U.S. Treasury Bond, the aristocrats' current yields hold up very well. The five-year T-Bill currently pays just 1.6%, while the 10-year bill is paying 2.72% and the longer 30-year is at 3.68%. And although most would agree the Treasury bond yields will rise in the future, our aristocrats have proved that they're just as likely to increase their yields as time goes on. Furthermore, stocks have the added benefit that the stock prices themselves will appreciate over that time frame.

For more in-depth analysis on strong reliable dividend paying stocks, check out our free report called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 10, 2013, at 2:11 PM, DavidBressler wrote:

    Hi,

    I'm a big proponent of investing with dividend aristocrats, especially if you have a long time horizon.

    I believe that we aren't measuring the results well, and are missing out on some key points. This article included.

    As dividend aristocrats raise their dividends over time, those raises accelerate. I just looked at P&G for an article I wrote, and over the past 11 years, their raises increased from ¢8/year to ¢16/year.

    Secondly, the dividend has tripled in that time. If you were earning 3% back then, you're earning 9% now based on your initial investment.

    Here's the article:

    http://elephantspaycheck.com/core-principles/dividend-aristo...

    Said differently, if you invest $1,000 & earn 3%, that $1,000 grows to $3,000 still earning 3%, you're earning 9% on your initial investment. In fact, you could forget the current value of your investment because it doesn't matter as much.

    And, with 57 years of increasing dividends, you're likely to get an increase next year. And, that increase gets bigger over time - it doubled in the past 11 years.

    db

  • Report this Comment On July 14, 2013, at 1:56 PM, XMFMT wrote:

    Hey DavidBressler,

    I can't agree more with your point that over time your actual dividend yield based on your initial investment amount increases when the company raises the dividend amount.

    I have also written about this topic and idea which you can read about here.

    http://www.fool.com/investing/dividends-income/2012/04/27/ho...

    Matt Thalman

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