Income Investing with the S&P Dividend Aristocrats

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.

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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.

Company Name Ticker Yield
CenturyLink Inc CTL 8.5672
Pitney Bowes Inc PBI 7.5510
Cincinnati Financial Corp CINF 5.7893
Leggett & Platt LEG 5.0748
Consolidated Edison Inc ED 4.2804
Kimberly-Clark KMB 4.0888
Abbott Laboratories ABT 3.6711
Johnson & Johnson JNJ 3.4846
Clorox Co CLX 3.4438
Procter & Gamble PG 3.3482
AFLAC Inc AFL 3.3454
PepsiCo Inc PEP 3.3431
Bemis Co Inc BMS 3.1424
Emerson Electric Co EMR 3.0845
PPG Industries Inc PPG 3.0396
Automatic Data Processing ADP 2.9376
Lowe’s Cos Inc LOW 2.8484
Air Products & Chemicals Inc APD 2.8111
Wal-Mart Stores WMT 2.7852
Stanley Black & Decker SWK 2.7768
McDonald’s Corp MCD 2.7327
Coca-Cola Co KO 2.6554
Exxon Mobil Corp XOM 2.5526
Chubb Corp CB 2.5474
3M Co MMM 2.4945
Walgreen Co WAG 2.4945
McGraw-Hill Cos Inc MHP 2.4325
Target Corp TGT 2.3725
McCormick & Co MKC 2.3485
Dover Corp DOV 2.3364
Archer-Daniels-Midland Co ADM 2.2923
VF Corp VFC 2.1674
Becton, Dickinson & Co BDX 2.049
Sherwin-Williams Co SHW 1.9642
Hormel Foods Corp HRL 1.8654
Brown-Forman Corp B BF/B 1.8296
Grainger, W.W. Inc GWW 1.7250
Cintas Corp CTAS 1.5680
Family Dollar Stores Inc FDO 1.3549
Ecolab Inc ECL 1.3175
Sigma-Aldrich Corp SIAL 1.1480
Bard, C.R. Inc BCR 0.8067

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

About the Author

By , on Sep 8, 2011
Miranda Marquit
Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own personal finance blog: Planting Money Seeds.

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Leave Your Comment (2 Comments)

  1. Adam WIlliams says:

    What does the Yield mean on your table?

    • Pinyo says:

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

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