Why You Should Consider Dividend Aristocrats
When you are looking for stable performance, and regular dividend increases, one place to start is the list of dividend aristocrats. Stocks can’t be considered dividend aristocrats unless they have increased their dividend payouts at least once a year for the past 25 years. If a stock misses a year, it is off the list – and it takes another 25 years to get back on. These safe dividend stocks are often considered the cream of the crop by investors who want regular returns, and a reasonable expectation of income increases.
Considering the Company
One of the reasons dividend aristocrats can be so attractive is because it says something about the company. A company that can consistently afford to pay cash back to stockholders – and increase the amount given to shareholders each year – is usually in pretty good financial shape. Think about it: Because of what it takes to become a dividend aristocrat, it means that these companies continued to increase their dividend payouts even during recessions and stock market troubles.
If you are looking to invest in a company that is likely to survive economic downturns and market volatility, a dividend aristocrat might be just the thing. Not only are you likely to see increases in dividend income, but you are likely to, over time, see an increase in stock price, resulting in gains when you finally do sell.
Things to Keep in Mind
Of course, it is important to remember that dividend aristocrats might not always remain so. Companies can decide not to increase dividends – or even cut them – at any time. This means that a dividend aristocrat may end up off the list. When this happens, it is vital that you consider the situation surrounding the fact that a company is off the list. What has changed? Is the management changing? Are profits falling? Removal from the list can be an indication of trouble in some cases.
Also, be aware that investing in dividend aristocrats may not provide you with a huge income – especially immediately. It takes time to build up a dividend portfolio. Realize, too, that some dividend aristocrats have relatively small yields. Remember: These are stocks that raised payouts each year. However, they might not have started with a very high payout, and they need only increase the payout by one cent in an entire year to make the cut of being a dividend aristocrat. You can’t expect a huge income immediately from a portfolio heavily favoring dividend aristocrats.
Bottom Line
Even though there is no guarantee that a dividend aristocrat will always remain so, it is important to note that you can increase your chances of stability when you invest in a dividend aristocrat. Consider your options, and consider how dividend aristocrats might help your situation.