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4 Dividend Aristocrats You Need to Know

By Dan Caplinger – Jan 22, 2013 at 9:26AM

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The high-yield list isn't as widely followed, but these stocks still pack a punch.

In the quest for income, dividend-paying stocks have become one of the only viable alternatives for investors. Among dividend stocks, the Dividend Aristocrats group of indexes from S&P Dow Jones Indices has become a mark of distinction, giving its constituent companies a level of prestige that comes from the rewards they've given their shareholders over the decades.

Many dividend investors are familiar with the primary Dividend Aristocrats list, which requires a full quarter-century of annual dividend increases and limits its membership to the large-cap members of the S&P 500. But S&P Dow Jones Indices maintains two other lists based on the broader S&P 1500 Composite index, which includes many mid-cap companies as well. Let's take a closer look at one of these indexes, the S&P High Yield Dividend Aristocrats, with particular attention to the four companies that recently got added to the list.

Picking top-yielding Aristocrats
The name of the High Yield Dividend Aristocrats list is somewhat misleading, as recent changes to its methodology removed the need for a high dividend yield from the criteria for eligibility. Until last June, the index combined two of the most attractive attributes that a dividend stock can have: dividend growth and high current yield. Under the previous methodology, a stock had to have 25 years of consecutive dividend increases to meet the initial threshold for eligibility. Then, S&P Dow Jones Indices chose the 60 highest-yielding stocks from that group to make the official list.

Under the new methodology, the number of years of dividend increases was reduced to 20, and there's no longer a maximum number of qualifying stocks, making yield unimportant. The market capitalization requirement was increased from $500 million to $2 billion, excluding a number of small-cap stocks from the list as well.

Meet the newest High Yield Dividend Aristocrats
With the annual reconstitution of the index having just taken place, let's take a look at the four new companies on the High Yield Dividend Aristocrats list.

Praxair (LIN -0.53%)
Praxair provides a number of atmospheric and specialty gases for industrial use, as well as high-performance coatings for a variety of applications. That may seem like a fairly pedestrian business, but it's one in which Praxair has done well, with long-term relationships with many large customers and huge growth opportunities in the growing South American market. With 20 years of dividend increases and a yield of almost 2%, Praxair shows the stability that's common in Dividend Aristocrats.

Linear Technology (LLTC)
Linear Technology makes high-performance analog chips for the communications semiconductor industry. Yet with the company having gotten left out of the iPad 2 when it was redesigned back in early 2011, Linear Tech has missed out somewhat on the amazing growth in the smartphone and tablet markets. Still, the company's shares have rebounded lately despite having missed analyst estimates in its most recent quarterly report last week. With 21 years of dividend increases and a nearly 3% yield, Linear Tech shows the resiliency of successful Dividend Aristocrats even when things aren't going perfectly.

Roper Industries (ROP -0.38%)
With a yield of just 0.6%, Roper doesn't look like much of a dividend giant. Roper specializes in instrumentation that's used for scientific, medical, and energy applications such as control systems, digital imaging, and radio-frequency ID products. Given the huge growth in many of its target markets, especially the energy industry, it's not surprising to have seen Roper's stock soar over the past year. Just last month, Roper turned in its 20th consecutive dividend increase. Yet with its low yield, Roper is much more about future growth prospects than about current income.

A.O. Smith (AOS -0.33%)
Another example of a somewhat mundane-sounding business is A.O. Smith's production of water heaters and boilers for residential and commercial use. But with the Milwaukee-based business having extended its reach beyond North America to tap the growing Chinese market, A.O. Smith saw earnings growth explode higher in 2012. With a yield of just 1.2%, the company's another example of how the High Yield Dividend Aristocrats are misnamed.

Go for aristocracy
Dividend Aristocrats aren't always perfect investments. Avon Products (AVP), which got dropped from the list, has suffered huge losses as the company has failed to keep up with its growth hopes and made the ill-advised move of spurning a takeover bid.

But as ways to encounter companies that aren't closely followed by many investors, the High Yield Dividend Aristocrats list is a reasonable place to start looking for dividend stocks. Despite having very different characteristics, each of the four stocks above has something to offer investors.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Linear Technology. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Avon Products Stock Quote
Avon Products
Linde Plc Stock Quote
Linde Plc
$332.48 (-0.53%) $-1.78
Linear Technology Corporation Stock Quote
Linear Technology Corporation
Roper Technologies Stock Quote
Roper Technologies
$435.16 (-0.38%) $-1.66
A. O. Smith Stock Quote
A. O. Smith
$59.62 (-0.33%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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