If you love dividends, you should enjoy this week’s #AskDrWealth where I cover how you can screen for Dividend Aristocrats using a free tool. I summarised what we covered in this article. But first, here’s the full video:
What are Dividend Aristocrats?
Originally, Dividend Aristocrats are S&P 500 constituents that have increased their dividends consecutively, over a long period of 25 years.
The S&P 500 Dividend Artisocrats Index was launched in May 2005. Since then, S&P has expanded their definition of ‘Dividend Aristocrats’, depending on the market and countries they looked into:
Why are Dividend Aristocrats attractive?
Dividend Aristocrats provide the best of both worlds – dividends and capital gains.
In order to earn the status of a ‘Dividend Aristocrat’, a company has to meet the criteria of having increased their dividends consecutively for 25 years.
This means that, over the years the company would have to:
- survive through multiple rounds of bear and bull markets,
- increase their earnings
- increase their cash flow
If a company is successful in doing the above, it is common for their share price to increase over time as well.
Such companies tend to be successful global enterprises in their growth phase. They are best held over the long term, until they stop increasing or start to reduce their dividends.
Average returns of Dividend Aristocrats
Over the past 10 years, the S&P 500 Dividend Aristocrat index has clocked 10.98% annual returns with 12.47% standard deviation.
Comparatively, the S&P 500 index clocked 10.53% annual returns with 13.30% standard deviation.
This suggests that Dividend Aristocrats delivered slightly higher returns, at lower volatility.
How to Invest in Dividend Aristocrats?
You can invest in such stocks through an ETF, or buy investing in individual stocks.
ETF
If you don’t want to analyse individual Dividend Aristocrat stocks, you can invest through the ProShares S&P 500 Dividend Aristocrats ETF instead:
You’ll notice that in recent years, the Dividend Aristocrats index did not do as well as the S&P 500 index. This is probably due to the overperformance of tech stocks.
Pick individual stocks
Another way to invest in Dividend Aristocrats is to buy the individual stocks. The next section will cover this in detail:
How to screen for Dividend Aristocrats?
For the list of U.S. Dividend Aristocrats in the S&P 500, you can refer to this or this.
In this article, we go beyond that to look for opportunities beyond the U.S. To do that, we use our free Dr Wealth App unfortunately, the Dr Wealth App has been decommissioned. At the point of writing, our screener covers the Singapore, US, Hong Kong, China, Vietnam, Indonesia, Malaysia and Japan markets. U.S. markets will be added in soon.
Click on the ‘Discover’ icon at the bottom of your screen to view our range of screeners:
Tap on the screener that you’d like to use:
A list of stocks that meet the criteria will be generated.
Tap on the funnel icon at the top right of your screen to filter for stocks listed in different countries.
Do note that our Dividend Aristocrat screener screens for stocks that has maintained their dividends for 5 years (equal to or rising from preceding dividend per share) instead.
How to analyse Dividend Aristocrats?
First, you’ll want to take note of the dividends per share, dividend growth and dividend yield over time.
Do note that these data are historical. You’ll need to do your own qualitative analysis of the company, industry and economy.
For example, Covid-19 may affect dividend streak. Companies in heavily hit industries like aviation (eg. SATS Ltd SGX:S58) may not be able to continue paying out dividends.
To get a better sensing, you can refer to the company’s announcements, annual reports, quarterly reports or mid year reports.
Arguments against Dividend Aristocrats
There are no perfect investing strategies. You should note these two disadvantages of Dividend Aristocrats:
- Dividend Withholding Tax
If you’re investing in Dividend Aristocrats for the cashflow, you’ll want to take note of the potential dividend withholding tax:
- You may miss out young tech stocks
Most tech stocks are relatively young and do not pay dividends, which means that you’ll miss out on them if you are focused solely on Dividend Aristocrats.
The difference in the returns of S&P 500 index versus S&P 500 Dividend Aristocrat index in recent years illustrates this well.
- Foreign currency depreciation
If you’re hunting for Dividend Aristocrats in developing countries, you may need to consider foreign currency risk.
Dividend Aristocrats List
Here are the top 5 Dividend Aristocrats in Singapore, Malaysia and Hong Kong, accurate at the point of writing:
Dividend Aristocrats in Singapore
Dividend Aristocrats in Malaysia
Dividend Aristocrats in Hong Kong
