The S&P 500 Dividend Aristocrat Index is a basket of stocks from the S&P 500 that have increased their dividend for at least 25 consecutive years.
Over the past 19 years, the Dividend Aristocrat index outperformed the S&P 500 by nearly 1 percentage point on an annualized basis. Although both indexes provided strong returns, I would not have expected the Dividend Aristocrat index to outperform given its lack of growth-oriented tech companies -- the sort of up-and-coming businesses that have been in vogue over the past several years.
| Period | S&P 500 Dividend Aristocrats Total Return* | S&P 500 Total Return |
|---|---|---|
| 2003 | 25.4% | 28.7% |
| 2004 | 15.5% | 10.9% |
| 2005 | 3.7% | 4.9% |
| 2006 | 17.3% | 15.8% |
| 2007 | (2.1%) | 5.5% |
| 2008 | (21.9%) | (37%) |
| 2009 | 26.6% | 26.5% |
| 2010 | 19.3% | 15.1% |
| 2011 | 8.3% | 2.1% |
| 2012 | 16.9% | 16% |
| 2013 | 32.3% | 32.4% |
| 2014 | 15.8% | 13.7% |
| 2015 | 0.9% | 1.4% |
| 2016 | 11.8% | 12% |
| 2017 | 21.7% | 21.8% |
| 2018 | (2.7%) | (4.4%) |
| 2019 | 28% | 31.5% |
| 2020 | 8.7% | 18.4% |
| 2021 | 26% | 28.7% |
| 2003-2021 | 12.4% | 11.5% |
Data sources: *Periods prior to the launch of the S&P 500 Dividend Aristocrats index (May 2, 2005) use hypothetical backtested performance provided by S&P Global. Data prior to 2012 was provided by Yardeni Research.
The Dividend Aristocrat index did underperform in the tech-mania years of 2019 to 2021. This was a period in the market where growth at any cost was valued at extreme valuations and markets were largely driven by fear of missing out (FOMO) and momentum investing. In this type of environment, I'm not surprised slower-growing, profitable, more mature, dividend-paying companies would underperform.
The Dividend Aristocrat index slightly underperformed in the period coming out of the dot-com crash from 2003 to 2007. But the Dividend Aristocrats slightly outperformed coming out of the global financial crisis-driven market crash as seen in the period from 2009 to 2017. So that's a wash.
There have been only two negative total return years (2008 and 2018) in the S&P 500 index in the past 19 years (just wow!) and the Dividend Aristocrat index outperformed meaningfully in both of them (wow again!).
I don't think you can go wrong with either index, but my preference is still for the more diversified S&P 500 or the even more diversified S&P Total Stock Market Index.
Below is a table created by New Constructs of all the stocks in the Dividend Aristocrat index, along with their trailing-12-month return on invested capital (ROIC), dividend yield, and number of years of dividend growth.
Image source: New Constructs.
