The Standard & Poors (S&P) 500® Divided Aristocrats are members of a list that includes only the most premier dividend stocks. In order to be included on this elite list, a company must meet certain rigorous requirements. First, it must be a member of the S&P 500®. As such, the companies that are named to the divided aristocrats list are all large-cap, blue-chip stocks. In addition, every company making the list must have increased its dividends for each of the previous 25 consecutive years.
These criteria are strictly adhered to, which is what makes the S&P 500® Dividend Aristocrats a list of the aristocracy of income stocks. Being designated a dividend aristocrat indicates a very stable company. For a period of 25 years, the company has overcome recessions or other boom-and-bust irregularities in the stock market and has been able to increase the returns to its shareholders.
The composition of the S&P 500® Dividend Aristocrats does change over time. Sometimes, it might change dramatically and frequently, depending upon economic upheavals. Every December, the list is re-balanced in an annual review that makes sure that only the most elite, consistent dividend stocks remain on the list.
At the annual review, any current dividend aristocrat that has been removed from the S&P 500® in the previous year, for any reason, is deleted from the list. If an existing member should decide to freeze its dividend for a year, it also is removed from the list. Finally, if a current member of the dividend aristocrats list decides to cut its dividend sometime in the next 12 months after the annual review, it is dropped from the list the following December. After being dropped from the dividend aristocrats list, a company, no matter how large or important, will then have to wait another 25 years before it is eligible to be included again. Likewise, any member company of the S&P 500® that crosses the threshold of 25 consecutive years of increasing dividends is added to the list each December.
Investors often look at the dividend aristocrats as providing a list of solid companies with excellent track records in which to invest. The dividend aristocrats usually are not among the highest-yielding stocks that an investor can find. High yields are not a prerequisite to being named to the list. What is most important is stability and longevity in providing consistent dividend increases to stockholders rather than providing the most return on an investment.