Who are the dividend aristocrats and is it worth investing in them?

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

You will receive payments steadily, but the risk of earning not so much.

What are dividend aristocrats

Dividend aristocrats are large and reliable companies that constantly make profits and share them with shareholders.

You can earn on promotions in two ways:

1. Buy them cheaper, after a while sell them at a higher price.
2. Receive dividends.

It is clear that it is not always possible to guess whether the shares will rise in price. But with the second method, everything is also not easy. Money doesn't magically appear out of nowhere. The company must earn a lot of money for the reporting period, following the results of which dividends are paid. In any case, it is enough to pay off all obligations and use some of the funds for business development, if necessary. And the rest is already divided between the shareholders. But the economy is unstable, so some companies sometimes pay dividends, sometimes they don't. Other firms use all the money to grow.

Dividend aristocrats stand out for their stability. They demonstrate resilience to crises and economic fluctuations. These companies are increasing their earnings and can afford to accrue payments to shareholders year after year, and the amounts usually grow.

What distinguishes dividend aristocrats

We can find the classic dividend aristocrats primarily in the American market. These are the companies that are collected in the index. To get into it, you need to meet three criteria:

1. Be in the S&P 500 index, which contains the companies with the largest capitalization.
2. Have a capitalization of $ 3 billion and an average daily turnover for three months up to an estimate of $ 5 million.
3. Increase dividends for at least 25 consecutive years.

Now there are 65 companies on the list. Well-known in Russia - 3M, Caterpillar, Coca-Cola, Colgate-Palmolive, McDonald's, PepsiCo, Procter & Gamble.

There are indices for other countries with more modest requirements - usually we are talking about 5-10 years of dividend payments and less capitalization:

• Canadian companies -.
• British -.
• Japanese -.
• Brazilian -.

With the Russian dividend aristocrats, everything is somewhat more complicated. Obviously, it makes no sense to approach them with American standards. And there are no serious indexes that would collect them into one list. But you can always look for analytics from brokers or specialized media. For example, RBC Investments was selected by ten Russian companies that “showed a high average dividend yield and a steady upward trend in dividends and quotations”. The list includes Tatneft, NLMK, NCSP, Seligdar, OGP-2, Gazprom Neft, Sberbank, Norilsk Nickel, IDGC of Center and Volga Region and MMK. It would be premature to call them aristocrats, but stocks may be of interest for investment.

What are the advantages of shares of dividend aristocrats

Permanent and high dividends

Even if the payouts are not impressive in absolute terms, they will still be high relative to the market. Especially given the fact that many firms do not distribute dividends at all.

Stability

If a company pays dividends on a regular basis, this demonstrates its good stability in the market. This state of affairs allows us to hope that it will not go bankrupt suddenly and withstand shocks.

More stable share price

Usually, the value of securities of dividend aristocrats does not show dizzying growth. But on the horizon in a few years, or even decades, it will be. At the same time, as a rule, you can not be afraid of sharp falls. The company's reputation will protect the stock from speculation. And if the price drops, it will be supported by the increased interest of investors who will buy securities on a decline.

What are the disadvantages of shares of dividend aristocrats

More stable share price

This point was already in the advantages, but it is also worth noting in the disadvantages. Securities will rise in price slowly. But there are many tech companies on the market that are showing more tangible growth. For example, Zoom has gained 3.6 times over the past five years, while Coca Cola has gained 1, 2. And it turns out that if you bought a Zoom share 5 years ago, you could now sell it and earn $ 241.87. In the case of Coca Cola, your income for these 5 years, including dividends, would be $ 14.66. (Five years ago, Zoom was worth twice as much as Coca Cola. It's not very important for the calculations, but suddenly it is important for you to know.)

Conservative industries

The payment of dividends for 25 years hints: the company has been on the market for a long time. Accordingly, she is engaged in a relatively conservative segment of the economy. This means not only that stocks are growing more slowly. There is a possibility that over the years the company may stop developing if it does not begin to develop new markets.

Is it worth investing in stocks of dividend aristocrats

Depends on your investment strategy. If you want to minimize risks and receive income not only in the future when selling shares, but constantly, then you should consider dividend aristocrats. Moreover, payments can be reinvested in new shares and earned thanks to compound interest.

But it's best not to put all your eggs in one basket. Keep some of the portfolio conservative and some of the stocks of tech companies or organizations from other fast-growing sectors. What kind of shares these will be, it is up to you to decide.

How to buy stocks of dividend aristocrats

You need to open a brokerage or individual investment account, you cannot do without them. The life hacker wrote in detail about each of them - choose what suits you.