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Investors always want to make money, but they have different objectives for growth and income. Some people are interested in stocks that pay high dividends because they need regular income right now, while others believe that there is a correlation between steady increases in dividend payouts and high total returns over the long haul.
Below is a screen of the S&P 500 Dividend Aristocrats showing which ones have increased payouts the most (subject to an initial yield minimum) over the past five years.
Defining the Aristocrats
The S&P 500 Dividend Aristocrats Index
SP50DIV,
is made up of the 66 companies among the full S&P 500
SPX,
that have raised their dividend payouts on common shares for at least 25 consecutive years. That is the only criterion — it makes no difference how high or low the current yield of a stock may be. The current yields among the group range from 0.21% for West Pharmaceutical Services Inc.
WST,
to 6.7% for Walgreens Boots Alliance Inc.
WBA,
The index is tracked by the ProShares S&P 500 Dividend Aristocrats exchange-traded fund
NOBL,
which was established in November 2013.
The S&P 500 Dividend Aristocrats Index is equal-weighted when it is rebalanced quarterly and reconstituted annually. The S&P 500 is weighted by market capitalization, which means its largest five companies — Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
Amazon.com Inc.
AMZN,
Nvidia Corp.
NVDA,
and two share classes of Alphabet Inc.
GOOGL,
GOOG,
— make up 24% of the portfolio of the SPDR S&P 500 ETF Trust
SPY,
which tracks the benchmark index. None of those top five are Dividend Aristocrats; the one with the highest dividend yield is Microsoft, at 1.72%.
So the Dividend Aristocrats Index arguably has lower risk because of its equal weighting. Then again, this can be a disadvantage for long-term growth investors during a period when the largest technology companies have led the stock market.
How have the Dividend Aristocrats performed?
Here are comparisons of total returns, with dividends reinvested, for the S&P 500 Dividend Aristocrats Index and the full S&P 500 for various periods.
First, absolute returns for various long periods:
| Index | 3 years | 5 years | 10 years | 15 years | 20 years | 25 years | 30 years |
| S&P 500 Dividend Aristocrats | 54% | 70% | 205% | 488% | 730% | 878% | 2,504% |
| S&P 500 | 53% | 77% | 228% | 363% | 566% | 515% | 1,649% |
| Source: FactSet | |||||||
And here are average annual returns:
| Index | 3 years | 5 years | 10 years | 15 years | 20 years | 25 years | 30 years |
| S&P 500 Dividend Aristocrats | 15.4% | 11.2% | 11.8% | 12.5% | 11.2% | 9.5% | 11.5% |
| S&P 500 | 15.1% | 12.1% | 12.6% | 10.8% | 9.9% | 7.5% | 10.0% |
| Source: FactSet | |||||||
The Aristocrats have outperformed the full S&P 500 slightly over the past three years, because they fell only 6.5% during 2022, when the full index dropped 18.1% (again, with dividends reinvested).
The Aristocrats have underperformed the full index for the five- and 10-year periods, but they have shined for the 20-, 25- and 30-year periods. So NOBL has been a viable long-term approach for lower risk through market cycles.
But you may also want to see which Aristocrats have grown payouts most rapidly.
Screening the Aristocrats for dividend growth
A long-term growth investor might choose to invest in the S&P 500 Dividend Aristocrats as a group, via NOBL, as a lower-risk play. But if an investor is looking to build an income stream, hoping eventually to receive the quarterly dividends rather than reinvest them, it might help to look back and see which companies among this group have grown their payouts the most.
Then again, if the idea is eventually to draw income, we need a starting point. So we have narrowed down the group of 66 Dividend Aristocrats to those whose dividend yields were at least 2% five years ago. From that starting point, these 15 Aristocrats have grown their annual dividend rates at compound annual growth rates (CAGR) greater than 7%, according to data provided by FactSet:
| Company | Ticker | Five-year dividend CAGR | Dividend yield on shares purchased 5 years ago | Dividend yield – 5 years ago | Current dividend yield | 5-year price change | 5-year total return |
| Automatic Data Processing Inc. |
ADP, |
12.62% | 3.76% | 2.07% | 2.32% | 62% | 80% |
| T. Rowe Price Group Inc. |
TROW, |
11.75% | 4.22% | 2.42% | 4.47% | -6% | 12% |
| Target Corp. |
TGT, |
11.44% | 5.72% | 3.33% | 3.32% | 72% | 94% |
| NextEra Energy Inc. |
NEE, |
11.00% | 4.45% | 2.64% | 2.53% | 76% | 96% |
| Illinois Tool Works Inc. |
ITW, |
10.93% | 3.72% | 2.21% | 2.10% | 77% | 100% |
| Aflac Inc. |
AFL, |
10.07% | 3.87% | 2.40% | 2.45% | 58% | 78% |
| Air Products & Chemicals Inc. |
APD, |
9.73% | 4.51% | 2.84% | 2.40% | 88% | 111% |
| Linde PLC |
LIN, |
9.10% | 3.28% | 2.12% | 1.36% | 142% | 163% |
| AbbVie Inc. |
ABBV, |
9.04% | 6.47% | 4.20% | 4.46% | 45% | 83% |
| Atmos Energy Corp. |
ATO, |
8.82% | 3.28% | 2.15% | 2.53% | 30% | 46% |
| Caterpillar Inc. |
CAT, |
8.61% | 3.86% | 2.56% | 2.16% | 79% | 102% |
| McDonald’s Corp. |
MCD, |
8.52% | 3.86% | 2.57% | 2.09% | 85% | 108% |
| Hormel Foods Corp. |
HRL, |
7.96% | 2.99% | 2.04% | 2.72% | 10% | 22% |
| General Dynamics Corp. |
GD, |
7.26% | 2.84% | 2.00% | 2.49% | 14% | 29% |
| Cincinnati Financial Corp. |
CINF, |
7.19% | 4.52% | 3.20% | 3.09% | 47% | 67% |
| Source: FactSet | |||||||
Click on the tickers for more about each company, ETF or index.
The “Dividend yield on shares purchased 5 years ago” column provides an important set of data, with yields ranging from 2.84% for General Dynamics Corp.
GD,
to 6.47% for AbbVie Corp.
ABBV,
If the lower end of that range doesn’t seem very impressive, keep in mind that the yield on 10-year U.S. Treasury notes
TMUBMUSD10Y,
was only 1.52% at the end of 2021. And now, with the federal-funds rate in the range of 5% to 5.25%, 10-year Treasury notes yield only 3.75%. The inverted yield curve indicates that professional investors in the bond market expect a recession. They are willing to buy long-term bonds at lower interest rates than the overnight rate because bond prices will be lifted if the Federal Reserve pushes interest rates lower to spur the economy during a recession. So the lower end of the yields on this list of 15 stocks may not seem so low a year or two from now.
Another point about the 15 highlighted dividend compounders is that 10 of them have outperformed the S&P 500, with dividends reinvested, over the past 10 years.
McDonald’s Corp.
MCD,
provides an excellent example: If you had purchased the shares five years ago, your dividend yield at that time would have been 2.57%, based on the annual payout of $4.04 per share and a closing price of $157.42 on June 27, 2018. Now the annual payout has increased 50% to $6.08, while the share price has increased 85% to $291.30 as of Tuesday’s close. That makes for a current dividend yield of only 2.09% for a new investor, but in our scenario, the dividend yield on our five-year-old shares would be 3.86%. And if you had reinvested, you would have more than doubled your money.
As always, a stock screen is only a starting point for your own research as you think about how competitive a company will be at providing goods and services for the next decade, a least.
Don’t miss: Another way to play AI stocks: These companies, including Nvidia, have been the most efficient chip makers
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