Income Investing with the S&P Dividend Aristocrats

By Miranda Marquit, on September 8, 2011

One of the ways to make money is through investing. Many people dreams of earning passive income through investments, but are scared to start trying. And this fear is natural. After all, it’s hard to be sanguine about investing with the market volatility we have seen. This is especially true when it comes to investing in individual stocks.

Photo by Alan Cleaver via Flickr

Stock picking is a term that many of us are wary of. However, there are ways to choose solid stocks for an income portfolio. One of these ways is to consider investing in dividend aristocrats.

What are Dividend Aristocrats?

Dividends stocks are those that pay out a portion of profits that companies receive. Your dividend payout is based on how many shares you own. The more shares you have, the larger your dividend payout. Stocks that pay dividends do so regularly; dividends can be increased or decreased — or stopped altogether. When you choose a dividend stock, you might find that the company slashes its dividend soon after, reducing the income you get from the stock.

This is why, when choosing dividend stocks, many investors gravitate toward dividend aristocrats. Dividend aristocrats are stocks that have increased their payouts every year for 25 years. Some dividend aristocrats have been increasing dividends each year for more than 40 years! Of course, the dividend increase needn’t be huge to qualify. But, the fact that a company has continued to increase its payout through recessions and stock market crashes means something.

Dividend aristocrats are generally considered to be solid companies. They have good enough management, and enough cash reserves, to continue upping the payouts through good times and bad. Additionally, these are companies that are likely to continue to grow — or at least remain bastions of American business. Companies like Coca-Cola (KO), Johnson & Johnson (JNJ) and Target (TGT) are dividend aristocrats. (Of course, once you cut your dividend, or fail to raise it, you are off the list.) Dividend aristocrats are companies that have a good chance of seeing you through the turbulence of the market, and providing you with dividend income, on top of steadiness in stock gains over time (although these gains aren’t going to be dramatic).

How to Invest in Dividend Aristocrats

There are different ways to investing in dividend aristocrats. Of course, you first have to find out what companies fall in this category. One of the easiest ways is to check which companies are on the S&P Dividend Aristocrats Index (the full list is reproduced below for your convenience). This will give you an idea of which companies to target. If you are looking for slightly higher yields, you can look at the S&P High Yield Dividend Aristocrats Index. You can either invest in the indexes that track dividend aristocrats, or buy shares on an individual basis.

You can purchase shares in companies either through a stock broker (including using an online brokerage), or through direct stock purchase plans that many companies offer. In any case, you can set up a dollar cost averaging strategy to keep you steadily buying shares and partial shares, or you can save up money to buy when these stocks are on sale.

You really can pick decent stocks. If you are trying to build for the long haul, or if you are putting together an income portfolio, it might be worth it to consider dividend aristocrats.

The S&P Dividend Aristocrat List for 2011

Currently, there are 42 companies that meet the Dividend Aristrocrat requirement, i.e., stocks that have increased their payouts every year for 25 years.

Note: Yield figures are as of 9/7/2011. Click on the link for the current stock profile.

You can see an alphabetically sorted list of 2011 Dividend Aristocrats at InvestorJunkie.com.

Leave Your Comment (2 Comments)

1. Adam WIlliams says:

   September 9, 2011 at 2:14 pm

   What does the Yield mean on your table?

   Reply
   • Pinyo says:

     September 9, 2011 at 10:51 pm

     @Adam – That would be the dividend yield. It shows how much a company pays out in dividends each year relative to its share price.

     Reply