How Can 'Dividend Aristocrat' Stocks Help You Beat The Market?
Question: I've been hearing a
--Frankie, Tucumcari, New Mexico
Answer: Frankie, the name alone should tell you that these are a special group of companies. Standard & Poor's (S&P) did an exhaustive amount of research, seeking companies that manage to raise their dividends year in and year out -- even when the U.S economy slows. They found that these companies are likely to keep boosting their dividends at a steady pace, well into the future, rain or shine.
To be a "," a company must be in the S&P 500, have a aristocrat of at least $3 billion and must have boosted its dividend -- by a little or a -- for 25 years straight.
Of the 500 companies in the dividend yield of these aristocrats is historically much higher than the offered by the other 450 or so companies in the S&P 500., less than 10% make the grade. The average
These companies income streams, but they also tend to see their share prices rise in value at a respectable clip. After looking at data from the past 90 years, we found that dividend payments accounted for about one third of the wealth that these stocks have generated, with the other two thirds of the return captured by rising share prices.up a unique twist. Not only do they generate steadily rising
A basket of these stocks has consistently delivered total returns that have outperformed the broader S&P 500. In fact, the S&P 500has outperformed the S&P 500 over three-, five-, 10- and 20-year periods on a total return .
Offense And Defense
Part of the charm of owning stocks that sport rising dividend yields is their broad-based appeal in buy-and-hold . That means they're less subject to the wild price swings that other stocks have generated in recent years.or markets. In a , these stocks tend to rise in tandem with the broader averages. And when the slumps, investors are inclined to sell other stocks and hang on to their dividend-paying stocks as
And whereas other dividend-focused strategies tend to tieto a particular industry such as utilities, (REITs) or energy Master (MLPs), the are involved in a wide variety of industries. This removes the risk of your portfolio being tied to just a narrow slice of the .
So should you invest in aristocrat stocks? The answer is a qualified yes. These companies are surely tried-and-true winners, but they've also become especially popular in recent years as the relative yields of fixed incomelike and have slumped toward zero.
One final thought: The stocks that qualify as don't the most robust dividend yields. Yet unlike the higher yielders that possess more limited growth prospects and may boost their dividends only modestly, appear to be in a very good position to steadily boost their dividends at a faster pace. Own them now and you may be stunned to see what kinds of dividends they are generating a decade or two in the future.typically