Over the next few weeks I'll be taking an in-depth look at each one of the Dow Jones Industrial Average's nine dividend aristocrats. What makes for an aristocrat, which Dow components are a part of this elite group, and why so investors need to know about these stocks? Let's take a closer look.
What does it mean to be a dividend aristocrat?
A dividend aristocrat is a company that has for at least 25 years consecutively not only paid a dividend but also increased it once or more a year during that period. Over the past quarter-century, the U.S. has been in a number of recessions, economic downturns, and years of slow growth, but these companies managed to continue not only making money, but also giving capital back to their shareholders.
When the U.S. or even world economies are firing on all cylinders, it's easy for companies to come in and increase their dividend one or two years in a row, but to do it for at least 25 years straight -- and as you'll soon see, most have done it much longer than that -- takes a certain type of management team and company philosophy to keep the business in a financial position where it can continue increasing its payouts.
Who are the Dow's aristocrats?
Currently, nine of the Dow's only 30 components are dividend aristocrats, while only 54 of the S&P's 500 stocks are part of the group. Let's review the Dow's nine aristocrats.
Year Started Increasing Dividend
Current Dividend Yield
Johnson & Johnson
Procter & Gamble
These companies have a few things in common. They're consumer oriented, offering products that everyone uses on almost a daily basis, so even though they may experience a slowdown during tough economic times, they won't be in danger of going out of business simply because the economy takes a downturn. Most Americans would agree that it would be difficult to live without the things these companies produce.Procter & Gamble, 3M, and Johnson & Johnson, for example, all sell products we use nearly every day of our lives, whether it be home cleaning products, office supplies, or a Band-Aid when your child scratches his knee.
And since these companies have proved in the past that they can live through tough economic times and still give back to their investors, these are the types of stocks we want to own and live on during retirement. During the later years of our lives, a quarterly dividend check may be a large and important part of your income, and if it's coming from one of the aristocrats, you'll probably sleep a little better at night knowing the track record of the company your income is coming from. Just consider the healthy returns from these companies and their very safe yields. AT&T leads the way with a very respectable 5.1%, while the low end of the nine Dow aristocrats is 3M at 2.3%, while Procter & Gamble and Johnson & Johnson are both at 3.1%.
In fact, when we compare these stocks with what most investors call the safest return, a U.S. Treasury Bond, the aristocrats' current yields hold up very well. The five-year T-Bill currently pays just 1.6%, while the 10-year bill is paying 2.72% and the longer 30-year is at 3.68%. And although most would agree the Treasury bond yields will rise in the future, our aristocrats have proved that they're just as likely to increase their yields as time goes on. Furthermore, stocks have the added benefit that the stock prices themselves will appreciate over that time frame.
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The article The Dow's Dividend Aristocrats originally appeared on Fool.com.
Fool contributor Matt Thalman owns shares of Johnson & Johnson. Check back Monday through Friday as Matt explains what caused the Dow's winners and losers of the day, and every Saturday for a weekly recap. Follow Matt on Twitter: @mthalman5513. The Motley Fool recommends 3M, Chevron, Coca-Cola, Johnson & Johnson, McDonald's, and Procter & Gamble and owns shares of Johnson & Johnson and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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