I’m a big fan of Dividend Aristocrats. They are the bulk of my dividend growth portfolio. Dividend aristocrats are a unique breed of dividend stocks. They have a long history of strong performance and low volatility.
To become a dividend aristocrat a stock has to meet the following requirements:
- Be a member of the S&P 500 index.
- Increase dividend payments for 25+ years.
- Have a market cap of $3 billion.
- Have daily trading volume of $5 million.
These requirements set an extremely high bar for stocks to meet. Currently, only 66 companies hold the title of dividend aristocrat. For reference, there are 3,550 stocks in the total stock market index.
In January the S&P Dow Jones Indices announced the latest changes to the dividend aristocrats. 3 companies were removed and 3 companies were added.
The following companies were added this year. These companies have increased their dividends and have crossed recently crossed the 25+ year mark.
International Business Machines (Ticker: IBM, Sector: Technology). IBM is a multinational technology company that produces and sells computer hardware and software. Additionally, IBM provides hosting and consulting services in many areas such as cloud computing and nanotechnology. IBM is a large research organization. They hold the record for most US patents generated by a business. Despite being a large and well-respected technology company they are struggling to grow their revenues and innovate in a competitive environment.
NextEra Energy (Ticker: NEE, Sector: Utilities) NextEra is an American energy company capable of generating 46 gigawatts of electricity. NextEra is the largest electric utility by market cap. Additionally, it is the world’s largest generator of wind and solar renewable energy. NextEra is a leader in clean energy. In 2020 NextEra surpassed the market cap of ExxonMobil, which many saw as a symbolic milestone in renewable energy overtaking fossil fuels. However, in recent months oil stocks have rallied and Exxon once again has the larger market cap.
West Pharmaceutical Services (Ticker: WST, Sector: Healthcare) Out of the three companies added this year this was the only one I hadn’t heard of before. West is a designer and manufacturer of injectable pharmaceutical packaging and delivery systems. West delivers over 40 billion components and devices each year. Despite becomeing a Dividend Aristocrat West has a very low dividend yield of just 0.24%
The following three companies did not raise their dividends in 2020 and lost their aristocrat status.
Raytheon Technologies Corp (Ticker: RTX, Sector: Industrials) Raytheon Technologies is a defense and commercial aerospace giant. The company has faced massive headwinds due to the COVID-19 pandemic and the reductions in air travel. Despite maintaining their dividend through these hard times, they failed to increase their dividend payout thus ending their 27 years of dividend increases.
Otis Worldwide Corp (Ticker: OTIS, Sector: Industrials) Otis Worldwide designs and manufactures elevators, escalators, and moving walkways. Otis was just added as a Dividend Aristocrat in 2020.
Carrier Global Corp (Ticker: CARR, Sector: Industrials) Carrier Global designs and manufactures heating, ventilation, and air conditioning (HVAC) systems. Carrier was just added as a Dividend Aristocrat in 2020.
The 3 companies that fell from grace are all related. United Technologies spun off Otis Worldwide and Carrier Global before merging with Raytheon and forming Raytheon Technologies in 2020. After being spun out Otis and Carrier were automatically included as dividend aristocrats but they failed to increase their dividends after their first year as a standalone company.
The dividend aristocrats rarely drop out of the index. I think the fact that only 3 companies (that were 1 company at the start of 2020) were removed from the index during the middle of this global pandemic is a testament to the quality of the aristocrats as a whole. It’s impressive that despite not growing their dividend they still managed to maintain them. I will continue to invest in aristocrats and possibly add positions in the new aristocrats after taking time to review their financials.