These 12 ‘Dividend Aristocrat’ stocks have been the best income compounders over 5 years

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Stock-market investors typically privation to expect manufacture events oregon companies’ successes truthful they tin marque arsenic overmuch wealth arsenic possible. But arsenic a caller twelvemonth begins, a look backmost tin beryllium useful, particularly if you are looking for dividend income.

One hazard with selecting stocks by dividend output is falling into a “value trap,” which mightiness beryllium a mature institution that is increasing precise slowly, if astatine all. Some of these companies absorption connected fiscal show alternatively than increasing income and entering into caller merchandise oregon work categories.

A amended attack mightiness beryllium to physique dividend income implicit time. There are galore examples of companies that had humble (but decent) dividend yields 5 years ago, but person accrued dividend payments truthful overmuch since past that yields are present precocious for faithful investors.

Below is an example, drawn from the S&P 500 Dividend Aristocrats Index SP50DIV, -0.08%. This scale is made up of 65 companies successful the benchmark S&P 500 scale SPX, +0.12% that person accrued dividends connected communal shares for astatine slightest 25 consecutive years.

That’s the lone criterion for inclusion arsenic an Aristocrat — it makes nary quality however precocious a stock’s existent output is. The thought is that expanding the dividend consistently shows a committedness to shareholders’ interests and tin pb to bully performance. You tin put successful the Dividend Aristocrats arsenic a radical done the ProShares S&P 500 Dividend Aristocrats ETF NOBL, -1.02%.

Investors tin instrumentality immoderate comfortableness from a 25-year past of dividend increases, due to the fact that a dividend chopped tin beryllium unspeakable for a stock’s performance. But adjacent an Aristocrat whitethorn trim its payout. AT&T Inc. T, +3.25% is inactive included successful the S&P 500 Dividend Aristocrats Index due to the fact that it hasn’t yet made its announced dividend cut, planned aft it completes the spinoff of its WarnerMedia concern successful a woody with Discovery Inc. DISCA, +8.01% that was announced successful May. AT&T’s shares were down 8% successful 2021 with dividends reinvested — lone 12% of the S&P 500 declined for the year.

Moreover, a steadily expanding dividend is nary warrant of a market-beating performance. Only astir a 3rd of today’s Dividend Aristocrats person done truthful implicit the past 5 years.

Read: These are the best-performing S&P 500 and Nasdaq-100 stocks of 2021

For a dividend-compounding illustration from the S&P 500 Dividend Aristocrats, see the show of a five-year concern successful T Rowe Price Group TROW, -0.53% :

  • The banal closed astatine $75.26 connected Dec. 31, 2016. At that time, the yearly dividend complaint was $2.16 a stock for a dividend output of 2.87%.
  • At the adjacent connected Dec. 31, 2021, T. Rowe Price’s banal terms was $196.64 and the yearly dividend complaint had accrued to $4.32. The existent output connected the shares was 2.20%, but the output connected shares held for 5 years would beryllium 5.74%.
  • During that five-year period, T. Rowe Price’s stock terms accrued by 161%, and the stock’s full return, with dividends reinvested, was 203% according to FactSet.
  • The compound yearly maturation complaint (CAGR) for T. Rowe Price’s dividend implicit that play was 14.9%.

In the supra example, the output figures aren’t extreme, and the existent output connected the shares is little than it was 5 years ago. Then again, if you held T. Rowe Price for 5 years, your dividend output would present beryllium high, utilizing your acquisition price. And the five-year terms summation of 161% compares to an summation of 113% for the S&P 500, portion T. Rowe Price’s five-year full instrumentality of 203% compares to 133% for the S&P 500.

The ‘best’ dividend compounders among the S&P 500 Dividend Aristocrats

Starting with the existent database of 65 Dividend Aristocrats, present are the 12 with the highest five-year CAGR for the yearly dividend complaint and had dividend yields of astatine slightest 2.00% astatine the extremity of 2016:

Company Ticker Five-year dividend CAGR Dividend output connected shares purchased 5 years ago Dividend output – 5 years ago Current dividend yield Price alteration – 5 years Total Return – 5 Years
AbbVie Inc. ABBV, -0.97% 17.1% 9.01% 4.09% 4.17% 116% 172%
T. Rowe Price Group Inc. TROW, -0.53% 14.9% 5.74% 2.87% 2.20% 161% 203%
Illinois Tool Works Inc. ITW, -2.04% 13.4% 3.98% 2.12% 1.98% 102% 127%
Aflac Inc. AFL, -0.14% 13.2% 4.60% 2.47% 2.74% 68% 89%
Automatic Data Processing Inc. ADP, -1.99% 12.8% 4.05% 2.22% 1.69% 140% 167%
Abbott Laboratories ABT, -1.88% 12.1% 4.89% 2.76% 1.34% 266% 300%
NextEra Energy Inc. NEE, -2.40% 12.1% 5.16% 2.91% 1.65% 213% 252%
Air Products and Chemicals Inc. APD, -2.52% 11.8% 4.17% 2.39% 1.97% 112% 138%
McCormick & Company Inc. MKC, -1.07% 9.5% 3.17% 2.01% 1.53% 107% 125%
Atmos Energy Corp. ATO, -0.76% 8.6% 3.67% 2.43% 2.60% 41% 58%
Target Corp. TGT, -0.81% 8.4% 4.98% 3.32% 1.56% 220% 269%
McDonald’s Corp. MCD, -0.81% 8.0% 4.53% 3.09% 2.06% 120% 149%
Source: FactSet

You tin click the tickers for much astir each company. Click here for Tomi Kilgore’s elaborate usher to the wealthiness of accusation for escaped connected the MarketWatch punctuation page.

To beryllium sure, the Dividend Aristocrats haven’t each been fantabulous performers. The supra database includes galore of the best-performing Dividend Aristocrats connected a total-return basis. Among the 65 components of the index, lone 21 person beaten the S&P 500’s full instrumentality implicit the past 5 years.

Investing successful the Dividend Aristocrats arsenic a group

Have the Dividend Aristocrats arsenic a radical fared amended than the S&P 500 implicit precise agelong periods? Here’s a examination of mean yearly returns for the S&P 500 Dividend Aristocrats and the afloat S&P 500 for assorted periods done the extremity of 2021:

Average yearly returns
Index 5 years 10 years 15 years 20 years 25 years 30 years
S&P 500 Dividend Aristocrats 15.7% 15.4% 11.7% 11.2% 11.5% 11.8%
S&P 500 18.5% 16.6% 10.7% 9.5% 9.8% 10.6%
Source: FactSet

Over the past 5 and 10 years, the afloat S&P 500 scale has outperformed the S&P 500 Dividend Aristocrats. But the Aristocrats arsenic a radical person outperformed for the longer periods.

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