What Is the S&P 500 Dividend Aristocrats Index?

Introduction

Increasing dividend payments from one year to the next is a positive sign. It suggests that the company will be able to maintain profitability and growth in the foreseeable future. A company that increases its dividend yearly for at least 25 years is excellent. Index: The S&P 500 Dividend Index provides investors with a comprehensive view of the companies that have achieved this level of performance.

Every January, S&P Dow Jones Indices, the index's owner, reviews and revises the list of qualifying companies. Monthly rebalancing of the index is also carried out from January through July and October. as a result, the number of shares held by each member is adjusted to make each holding an equal portion of the index.

Examples of S&P 500 Dividend Aristocrats

Their backgrounds are diverse, and they're all in their late 30s or early 40s. They must have been in business for at least a few years. Several companies, such as Emerson Electric Co. (EMR), which provides engineering and electronic products to industrial customers, have seen dividend increases over time. A.O. Smith (AOS), Praxair (PX), Roper Technologies (ROP), and A.O. Smith (AOS) were all granted the right to participate in the last quarter of the decade, as well as other companies that manufacture industrial gas and other products. The fact that a company is a blue chip does not guarantee inclusion in the Dividend Aristocrats index. When a company fails to raise its dividend or is removed from the S&P 500 Index, it may be removed from the list.

Dividend Aristocrats: A Guide to Investing

Most traditional and online brokers allow customers to invest in dividend aristocrats. The dividend aristocrats must be purchased in their entirety per the rule. Aristocrat dividend stocks can now be purchased in fractional shares through brokerages like Schwab, Fidelity, Stash, M1 Finance, and Robinhood. Alternatively, purchasing an ETF that holds all dividend-aristocrat stocks could invest in dividend aristocrats.

"Total Return"

In other words, an investor's shares, when sold or redeemed, could be worth more or less than they were when they were first purchased, depending on the rate of return and the principal value of the investment. Shares can't be redeemed out of the fund individually because they're sold and bought at market prices, not at NAVs. As of 4:00 p.m. ET (when NAV is typically determined for most funds), returns on market prices are calculated based on the midpoint of the spread bid/ask between 4:00 p.m. ET (when NAV is typically determined for most funds). The brokerage fees you pay will have an impact on your earnings.

To what extent can you combine dividend and growth investments?

Include dividend income in your total return calculations using a total return strategy. The S&P 500, on the other hand, returned an average annual rate of 11.65% over the same period. Investment in an S&P 500 index fund will allow you to own dividend aristocrats while generating historically higher returns, even if the fund's dividend yield is lower than average.

Explaining the Benefits

A lower degree of swings in the market: The index is less volatile than the general market because it comprises blue-chip, large-cap companies.
As a reliable source of regular income, dividends are: To put it another way, dividends have made up a third of equity returns since 1926, while capital gains have made up two-thirds. Dividend payments provide investors with a steady source of income.
High yield rates are produced: Since its inception, the index has consistently outperformed the S&P 500 regarding dividend yields. In 2019, the index returned an average of 2.5%, while the S&P 500 returned an average of 1.8%.

List of Drawbacks

Winners can't keep winning if everything is weighted equally. To ensure equal weighting for all companies, the ones with the highest share price cannot maintain their position at the top. When a stock's price rises, it loses weight, and shares are sold to balance the portfolio at the end of the quarter. Consequently, investors who prefer to invest in stocks that outperform the market cannot do so.

Conclusion

The S&P 500 Dividend is here! The S&P 500's Aristocrats Index measures the performance of large-cap, well-known companies that have increased dividends for at least 25 years. A market capitalization of at least $3 billion and an average daily trading volume of at least $5 million are required for inclusion in the S&P500 Dividend Index. If a company fails to raise its dividend or is dropped from the broader S&P 500 Index, it may be dropped from the Dividend Index.