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Deep Dive: These 15 Dividend Aristocrat stocks have been the best income builders

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The S&P Dividend Aristocrats deserve more coverage.

Those are companies that have raised their dividend payouts consistently over the years — they’re dividend royalty, as it were. As a group, they have performed well in the long term. And they held up well in 2022, a year in which broad indexes fell into a bear market.

Below is a screen of the 15 Aristocrats that have raised dividends the most over the past five years. There is another list showing how well stocks listed a year ago in a similar screen have performed.

Despite the focus on dividends, the best way to think about the Aristocrats may be as a long-term growth strategy. The first and oldest group of Aristocrats tracked by S&P Dow Jones Indices is the set of 64 companies in the S&P 500 Dividend Aristocrats Index
SP50DIV,
-0.08%
.
These are companies in the benchmark S&P 500
SPX,
+0.95%

that have raised regular dividends for at least 25 consecutive years. That is the only requirement — it makes no difference how high a stock’s dividend yield is.

One way to play the S&P 500 Dividend Aristocrats as a group is to hold shares of the ProShares S&P 500 Dividend Aristocrats ETF
NOBL,
+0.59%
,
which was established in 2013. So here are comparisons of total returns, with dividends reinvested, for NOBL, the S&P 500 Dividend Aristocrats Index and the SPDR S&P 500 ETF Trust
SPY,
+0.97%

for various periods through Jan. 6:

ETF or Index

1 year

3 years

5 years

10 years

15 years

20 years

ProShares S&P 500 Dividend Aristocrats ETF

-4%

30%

58%

N/A

N/A

N/A

S&P 500 Dividend Aristocrats

-4%

32%

61%

235%

437%

751%

SPDR S&P 500 ETF Trust

-16%

26%

55%

219%

269%

513%

Source: FactSet

If we had run a similar comparison during the long bull market, the Dividend Aristocrats may not have fared so well. For example, for five years through 2021, NOBL returned 103%, while SPY returned 132%. Last year’s 18% decline for SPY made quite a difference.

The best dividend compounders

If you are building a nest egg for retirement, chances are you will want to shift your focus to income generation at some point. You might select stocks with high dividend yields, but a high current payout could be a sign that investors aren’t confident a company can maintain its dividend — if the stock price has fallen, the dividend yield has gone up, at least until the payout is cut.

If you hold shares for many years, and a company raises its dividend year after year, you might build up an income stream with an attractive yield — relative to the price you paid for the shares years ago.

For example, if you bought shares of AbbVie Inc.
ABBV,
-2.24%

at the close on Jan. 6, 2018, you paid $101.11 for your shares. The annual dividend at that time was $2.84 a share, so your dividend yield was 2.81%. The annual dividend is now $5.92 a share and the stock closed at $166.55 on Jan. 6, 2023. So the current yield on the stock is 3.55%, but the yield on your five-year-old shares is 5.86%. Meanwhile, the stock has risen 65%. And if you reinvested your dividends for the five years, the stock has returned 108%, which is double the S&P 500’s return for the same period.

So here is a new expanded screen to look at compound annual growth rates (CAGR). This time around, we are expanding beyond the S&P 500 Dividend Aristocrats to include two other groups of companies that consistently raise payouts, as tracked by S&P Dow Jones Indices:

The S&P 400 Dividend Aristocrats Index has 45 stocks of companies that have raised dividends for at least 15 consecutive years, drawn from the S&P Mid Cap 400 Index
MID,
+2.05%
.
It is tracked by the ProShares S&P MidCap 400 Dividend Aristocrats ETF
REGL,
-0.00%
.

The S&P High Yield Dividend Aristocrats Index
SPHYDA,
+0.41%

is made up of the 119 stocks in the S&P Composite 1500 Index
SP1500,
+1.04%

that have increased dividends for at least 20 straight years. It is tracked by the SPDR S&P Dividend ETF
SDY,
+0.32%
.
The S&P Composite 1500 is combination of the S&P 500, the S&P Mid Cap 400 and the S&P 600 Small Cap Index
SML,
+0.84%
.
So the S&P High Yield Dividend Aristocrats Index includes all the stocks in the S&P 500 Dividend Aristocrats Index. But it excludes some that are in the S&P 400 Dividend Aristocrats Index. The name of the High Yield Dividend Aristocrats Index is confusing because the yields aren’t necessarily high — they range from 0.33% to 6.91%.

Altogether, there are 134 S&P Dividend Aristocrats.

For our dividend growth review, we looked at regular dividend payouts five years ago to narrow the list to 74 that had dividend yields of at least 2.00% at that time.

Among the 74 companies, here are the 15 that have increased their dividend payouts the most over the past five years. The list is sorted by five-year CAGR for annual dividend rates:

Company

Ticker

Five-year dividend CAGR

Dividend yield on shares purchased five years ago

Dividend yield – five years ago

Current dividend yield

Price change – 5 years

Total return – 5 years

T. Rowe Price Group

TROW,
+3.62%

16.05%

4.48%

2.13%

4.27%

5%

23%

AbbVie Inc.

ABBV,
-2.24%

15.82%

5.86%

2.81%

3.55%

65%

108%

Williams-Sonoma Inc.

WSM,
-0.51%

14.87%

5.85%

2.93%

2.52%

132%

163%

Automatic Data Processing Inc.

ADP,
+0.99%

14.69%

4.23%

2.13%

2.08%

103%

125%

Fastenal Co.

FAST,
+1.91%

14.14%

4.52%

2.33%

2.60%

73%

98%

Aflac Inc.

AFL,
-2.36%

13.30%

3.74%

2.01%

2.28%

65%

86%

Target Corp.

TGT,
-0.57%

11.74%

6.49%

3.73%

2.70%

141%

171%

NextEra Energy Inc.

NEE,
+1.26%

11.59%

4.48%

2.59%

2.03%

121%

147%

Air Products and Chemicals Inc.

APD,
+1.17%

11.26%

3.85%

2.26%

2.09%

84%

107%

Prosperity Bancshares Inc.

PB,
-0.21%

8.85%

3.16%

2.07%

2.96%

7%

22%

Cullen/Frost Bankers Inc.

CFR,
-1.36%

8.83%

3.64%

2.38%

2.58%

41%

62%

Atmos Energy Corp.

ATO,
+1.23%

8.82%

3.56%

2.33%

2.63%

35%

52%

McDonald’s Corp.

MCD,
-0.38%

8.52%

3.49%

2.32%

2.26%

55%

74%

McCormick & Co. Inc.

MKC,
-0.72%

8.45%

3.03%

2.02%

1.81%

67%

81%

Hanover Insurance Group Inc.

THG,
-1.68%

8.45%

3.01%

2.01%

2.34%

29%

52%

Source: FactSet

Click on the tickers for more about each company.

Click here for Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.

Among these 15 Aristocrats, 11 have beaten the S&P 500’s five-year total return.

Looking back at last year’s list

A year ago we ran a similar screen to list the 12 best payout compounders among the S&P 500 Dividend Aristocrats for five years through 2021. (Ten of those stocks also appear on the new list, above.)

Leaving the list in the same order they were presented a year ago, here’s how the 12 Aristocrats listed then fared during 2021, as the S&P 500 declined 19% with dividends reinvested:

Company

Ticker

2022 total return

AbbVie Inc.

ABBV,
-2.24%

24%

T. Rowe Price Group

TROW,
+3.62%

-42%

Illinois Tool Works Inc.

ITW,
+1.13%

-8%

Aflac Inc.

AFL,
-2.36%

26%

Automatic Data Processing Inc.

ADP,
+0.99%

-1%

Abbott Laboratories

ABT,
+0.41%

-21%

NextEra Energy Inc.

NEE,
+1.26%

-9%

Air Products and Chemicals Inc.

APD,
+1.17%

4%

McCormick & Co. Inc.

MCK,
-0.46%

-13%

Atmos Energy Corp.

ATO,
+1.23%

10%

Target Corp.

TGT,
-0.57%

-34%

McDonald’s Corp.

MCD,
-0.38%

1%

Source: FactSet

Nine of the 12 best compounders among the S&P 500 Dividend Aristocrats for five years through 2021 outperformed the S&P 500 during 2022.

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