Dividend Aristocrats: Should You Buy?

  • Stock picking amid dividend aristocrats should give even better results.
  • Dividend aristocrats come from recession-proof industry sectors.
  • PE ratios vary from 11 to 155 and dividend yields from 0.4% to 6.5%.


A company receives the title of ‘dividend aristocrat’ when it has continuously increased its dividend for the last 25 or more years. This means that the company manages to go through recessions and market shocks with a growing, healthy cash flow that enables constant dividend increases.

This is what makes those companies so attractive for investors because lots of companies can show positive improvements in times of economic prosperity like the ones we have been enjoying for the last 7 years, but only few are able to do that consistently through economic cycles.

Any company that has increased its dividend in the last 25 years is a great company and therefore has to be analyzed for portfolio inclusion. This article is going to elaborate on how important dividend aristocrats are for a portfolio and what else is important when assessing such wonderful companies.

Current Situation

In an environment of low or no yields on savings, dividends have become increasingly important for investors depending on a constant stream of income. Retirees are an  example. On top of the healthy yields dividend aristocrats offer, the possibility of future yield increases.

The best way to have a look at how dividend aristocrats are doing is by analyzing the S&P 500 Dividend Aristocrats ETF (NOBL) which consists of 5 companies. Since its inception in October 2013 it has outperformed the S&P 500 by 9 percentage points, and this is excluding dividends.

figure 1 nobl vs sandp
Figure 1: NOBL versus the S&P 500 excluding dividends. Source: Yahoo Finance.

It is interesting how even with outperforming the S&P 500 and constant dividend increases the NOBL ETF has a lower PE ratio than the S&P 500, at 20.33 versus 23.94 respectively. As the NOBL was only incepted in 2013, it is not a representative look at the S&P 500 dividend aristocrat index, but will let us know if there really is something in these dividend aristocrats.

figure 2 S&P 5000 dividends
Figure 2: S&P 500 Dividend Aristocrats Index versus S&P 500. Source: S&P Indices.

As the dividend aristocrats have beaten the S&P 500 both in the short and long term, we should all run and buy them, right? Well, not so fast. Something to assess before buying are costs and valuations.


Even if just buying all the dividend aristocrats would probably not be such a bad idea, let us first take a look at valuations in order to potentially reach even better results.

We already mentioned that the PE ratio is lower than the S&P 500 average, but in an environment of 50 stocks, much more can be found. A PE ratio above 20 is still risky in historical terms as it implies an earnings yield of 5%, which is of course better than the S&P 500 4.16% but still below historical averages.

The other issue is costs: the NOBL ETF expense ratio is 0.35% which is still something that would consistently lower your returns in the long term for a service that you can perhaps even do better by yourself as all the dividend aristocrats are publicly available. On top of that, the NOBL ETF distribution yield is 1.56% while the S&P dividend aristocrats index dividend yield is 2.54%, which implies a higher expense ratio, but this is not the focus of this article.

TickerCompanyPE RatioDividend Yield
MKCMcCormick & Company, Incorporated33.11.70%
SYYSysco Corporation36.12.50%
EDConsolidated Edison, Inc.20.23.40%
BCRCR Bard Inc.1520.40%
CLXThe Clorox Company25.92.30%
CINFCincinnati Financial Corp.16.52.70%
TAT&T, Inc.17.34.70%
PNRPentair plcN/A2.10%
ADMArcher-Daniels-Midland Company16.32.70%
MDTMedtronic plc49.51.80%
LEGLeggett & Platt, Incorporated20.92.60%
CTASCintas Corporation24.11.10%
KMBKimberly-Clark Corporation44.42.70%
DOVDover Corporation19.12.40%
HCPHCP, Inc.N/A6.50%
BDXBecton, Dickinson and Company44.31.60%
BF-BBrown-Forman Corporation18.51.40%
XOMExxon Mobil Corporation29.23.20%
CLColgate-Palmolive Co.47.12.10%
SPGIS&P Global, Inc.25.371.35%
WMTWal-Mart Stores Inc.15.72.80%
WBAWalgreens Boots Alliance, Inc.27.61.70%
LOWLowe's Companies, Inc.26.21.40%
PGThe Procter & Gamble Company27.13.20%
ECLEcolab Inc.35.61.20%
JNJJohnson & Johnson21.12.60%
NUENucor Corporation44.73.00%
ITWIllinois Tool Works Inc.20.42.00%
PEPPepsico, Inc.29.52.80%
AFLAflac Incorporated11.32.40%
SWKStanley Black & Decker, Inc.18.32.00%
KOThe Coca-Cola Company27.13.00%
MMM3M Company21.72.50%
GPCGenuine Parts Company20.92.60%
CVXChevron Corporation 146.94.20%
VFCV.F. Corporation22.72.30%
ADPAutomatic Data Processing, Inc.27.62.40%
ABBVAbbVie Inc.183.60%
MCDMcDonald's Corp.23.52.90%
APDAir Products and Chemicals, Inc.222.30%
GWWW.W. Grainger, Inc.19.32.10%
SHWThe Sherwin-Williams Company25.31.10%
PPGPPG Industries, Inc.20.41.40%
EMREmerson Electric Co.17.83.60%
HRLHormel Foods Corporation24.11.60%
TROWT. Rowe Price Group, Inc.15.43.00%
CAHCardinal Health, Inc.182.10%
ABTAbbott Laboratories26.32.70%
BENFranklin Resources, Inc.12.12.00%
TGTTarget Corp.12.83.30%
Table 1: Dividend aristocrats by PE ratio and yield. Source: Morningstar.

The above table represents all the dividend aristocrats from the S&P 1500 and shows what a variegate group that is with PE ratios going from 11.3 to 152 and dividend yields from 0.4% to 6.5%. As according to the father of defensive investing Benjamin Graham and his book Security Analysis, a defensive investor should not buy stocks with a PE ratio higher than 15. The above list provides a possibility to choose for yourself and not pay unnecessary fees.

Sector Breakdown

By buying dividend aristocrats yourself you can select the best sector exposure in relation to your existing portfolio.

figure 3 sector exposure
Figure 3: S&P dividend aristocrats sector breakdown. Source: S&P Indices.

It is interesting to note that the biggest chunk of dividend aristocrats is made by recession-proof sectors like consumer staples and discretionary, health care, energy, utilities and telecommunication services. An astute investor could pick only the sectors he expects not to be severely hit by possible future economic turmoil.


The purpose of this article was to indicate that dividend aristocrats usually beat the S&P 500 and that they are also currently cheaper. On top of that, an investor can pick himself the best aristocrats for his portfolio or just wait for the complete market to fall to more normal historical levels and only then be more overweight in stocks.

The above list of companies represents relatively good companies which should make part of a well-diversified portfolio, but only for the right valuation.