Dividend Aristocrats: Achieving Long-Term Stock Market Gains

When I speak with those uninitiated in stock market investing, they do not always grasp the value of dividends, focusing instead immediately on growth stocks. I then attempt to explain that investing solely in growth stocks is a short-to-medium-term strategy that is generally risky. This allows me to introduce them to my own investment strategy: dividend aristocrats.

Dividends and their significance

The first question that will likely come to mind is: what is a dividend? Simply put, a dividend is like a rental payment that a company pays you every year because you hold shares in that company. The dividend amount is determined by the Board of Directors.

Example:

If you hold a share in company “X”, the dividend is set at €1. Therefore, you will receive €1 per share held each year; if you own 20 shares, you will receive €20.

It is important to note that when a dividend is distributed, a portion of your share value is consumed. In effect, the dividend is not paid as an additional amount, but is instead deducted from the share price.

Example:

You still hold your shares in Company X. On January 1, the share price is €10; on January 5, the dividend goes ex-dividend, meaning your share value is now €9, and €1 has been credited to your brokerage account.

And you might be thinking, “But then there’s no point!” On the contrary, there is! History has shown that high-dividend stocks tend to be more resilient than those that do not pay them. Furthermore, dividend-paying stocks are generally less volatile, as investors typically select them for long-term holdings… But there is even better! There are the dividend aristocrats!

Who are the dividend aristocrats?

For a stock to be classified as a dividend aristocrat, it must meet three simple and clear criteria:

1. An annual and continuous increase in annual dividends for at least 10 years (while 25 years is the standard for U.S. equities, 10 years already provides a solid foundation)
2. A daily trading volume of at least $5 million
3. A market capitalization of at least $3 million

I will focus exclusively on the French stock market here, specifically the CAC 40, as it is my primary area of expertise. Below is the list of French companies recognized as dividend aristocrats. If you believe another company deserves a spot on this list, please feel free to suggest it in the comments, and I will update the article accordingly:

• AIR LIQUIDE
• BIC
• BOUYGUES
• Casino
• Christian DIOR
• CNP Assurances
• Danone
• Eiffage
• Lagardère
• LVMH
• L’OREAL
• Sanofi
• SEB
• SODEXO
• TECHNIP
• Total
• Vinci

Why is investing in dividend aristocrats so compelling?

Investing in dividend aristocrats offers several undeniable advantages. However, keep in mind that dividend aristocrats are long-term investments, typically used to build a steady stream of income through a Share Savings Plan.

When I advise my friends or readers to invest in the stock market, I tell them they should operate under the assumption that the capital they have invested is already gone. Why? Simply to avoid disappointment. In truth, it is difficult to make money in the stock market without proper training and a keen interest in economic news. This is where “dividend aristocrats” become truly compelling. By investing in these types of companies, you can be certain that your capital will yield increasing returns each year. Furthermore, if you managed to purchase these shares while their value was low, your capital might yield 6.3% in the first year, 6.7% in the second, 7% in the third, and so on. Now, imagine the profitability of your capital 20 years later. (A 15% return? A 17% return?).

Changes to the Dividend Aristocrats Index in 2020

In early 2020, Amcor (AMCR), Atmos Energy (ATO), Realty Income (O), Essex Property Trust (ESS), Ross Stores (ROST), Albemarle (ALB), and Expeditors International (EXPD) were added to the Dividend Aristocrats index, bringing the total number of Dividend Aristocrats to 64 (up from 57).

On March 31, 2020, United Technologies merged with Raytheon to become Raytheon Technologies, changed its ticker to RTX, and spun off Carrier Global (CARR) and Otis Worldwide (OTIS), bringing the total number of dividend aristocrats to 66.

Ross Stores (ROST), added in January, announced that it was suspending its dividend on May 21, 2020, and was removed from The Dividend Aristocrats Index before the market opened on July 1, bringing the total number of members down to 65.

The Leaders and Laggards of 2020

Despite the COVID-19 pandemic and the uncertainty of an election year, U.S. stocks rebounded from their March lows to end the year on a high note, driven by hopes for vaccines. Some dividend aristocrats, such as Clorox (CLX), capitalized on the pandemic, while others struggled and were unable to raise dividends this year, such as Ross Stores (ROST) and Exxon Mobil (XOM). See two new dividend aristocrats for 2021 and one at risk.

The top dividend aristocrats for 2020 are:

• Albemarle Corporation (ALB)
• Target Audience (TGT)
• Lowe’s Companies (LOW)
• Clorox (CLX)

2020’s dividend aristocrats are lagging behind:

• Exxon Mobil (XOM)
• Federal Real Estate Investment Trust (REIT)
• Walgreens Boots Alliance (WBA)
• Chevron (CVX)
• AT&T (T)

Regardless of the year, the Dividend Aristocrats Index (NOBL) serves as an excellent starting point for your search for stocks with growing dividends.

We wish you all good health in 2021 and a year of hunting for that perfect dividend aristocrat!

Disclaimer: *My articles may contain forward-looking statements and projections, and are therefore inherently subject to numerous risks, uncertainties, and assumptions. Investment decisions necessarily involve the risk of capital loss. Every investor’s situation varies considerably, and the information provided in my articles must be applied to your own investment situation, objectives, risk tolerance, and investment horizon.*

That is precisely the advantage of dividend aristocrats! Please feel free to share your questions in the comments!