To win a place in the S&P fund, a company must have raised its dividend for 25 consecutive years. Businesses that have passed the test tend to have steadily growing earnings, strong balance sheets and a corporate culture that is committed to raising dividends.
Since it began operating in 2005, the S&P 500 Dividend Aristocrats benchmark has been closely followed by institutional money managers who are searching for reliable stocks.
Many of the 54 stocks in the index are so consistent that they maintained strong profit margins during the financial crisis. Familiar names on the list include 3M (MMM), Coca-Cola (KO) and Johnson & Johnson (JNJ).(BAC) and KeyCorp (KEY). Postage meter maker Pitney Bowes (PBI), a longtime aristocrat, cut its dividend this year. The meter business has suffered as old-fashioned mail has been replaced by electronic communications. Companies that recently recorded 25 years of growth and joined the list include AT&T (T), Colgate-Palmolive (CL), and mutual fund provider T. Rowe Price (TROW). The dividend aristocrats tend to do particularly well during downturns when investors seek safety. But in strong rallies, the blue-chips often lag a bit as confident shareholders race to buy riskier choices. In the turmoil of 2008, the aristocrat index lost 27%, compared to a decline of 37% for the S&P 500. When markets rebounded in 2009, the aristocrats gained 26%, trailing the S&P 500 by a percentage point. During the past five years, the aristocrats returned 21% annually, compared to 18% for the S&P 500.