Over the next few weeks I’ll be taking an in-depth look at each one of the Dow Jones Industrial Average (INDEXDJX:.DJI)‘s nine dividend aristocrats. What makes for an aristocrat, which Dow components are a part of this elite group, and why so investors need to know about these stocks? Let’s take a closer look.
What does it mean to be a dividend aristocrat?
A dividend aristocrat is a company that has for at least 25 years consecutively not only paid a dividend but also increased it once or more a year during that period. Over the past quarter-century, the U.S. has been in a number of recessions, economic downturns, and years of slow growth, but these companies managed to continue not only making money, but also giving capital back to their shareholders.
When the U.S. or even world economies are firing on all cylinders, it’s easy for companies to come in and increase their dividend one or two years in a row, but to do it for at least 25 years straight — and as you’ll soon see, most have done it much longer than that — takes a certain type of management team and company philosophy to keep the business in a financial position where it can continue increasing its payouts.
Who are the Dow’s aristocrats?
Currently, nine of the Dow Jones Industrial Average (INDEXDJX:.DJI)’s only 30 components are dividend aristocrats, while only 54 of the S&P’s 500 stocks are part of the group. Let’s review the Dow’s nine aristocrats.
| Company Name | Year Started Increasing Dividend | Current Dividend Yield |
|---|---|---|
| 3M Co (NYSE:MMM) | 1959 | 2.3% |
| AT&T Inc. (NYSE:T) | 1985 | 5.1% |
| Chevron Corporation (NYSE:CVX) | 1988 | 3.4% |
| Exxon Mobil Corporation (NYSE:XOM) | 1983 | 2.8% |
| Johnson & Johnson (NYSE:JNJ) | 1963 | 3.1% |
| McDonald’s Corporation (NYSE:MCD) | 1977 | 3.1% |
| The Procter & Gamble Company (NYSE:PG) | 1957 | 3.1% |
| The Coca-Cola Company (NYSE:KO) | 1963 | 2.8% |
| Wal-Mart Stores, Inc. (NYSE:WMT) | 1975 | 2.5% |
These companies have a few things in common. They’re consumer oriented, offering products that everyone uses on almost a daily basis, so even though they may experience a slowdown during tough economic times, they won’t be in danger of going out of business simply because the economy takes a downturn. Most Americans would agree that it would be difficult to live without the things these companies produce. The Procter & Gamble Company (NYSE:PG), 3M Co (NYSE:MMM), and Johnson & Johnson (NYSE:JNJ), for example, all sell products we use nearly every day of our lives, whether it be home cleaning products, office supplies, or a Band-Aid when your child scratches his knee.
And since these companies have proved in the past that they can live through tough economic times and still give back to their investors, these are the types of stocks we want to own and live on during retirement. During the later years of our lives, a quarterly dividend check may be a large and important part of your income, and if it’s coming from one of the aristocrats, you’ll probably sleep a little better at night knowing the track record of the company your income is coming from. Just consider the healthy returns from these companies and their very safe yields. AT&T Inc. (NYSE:T) leads the way with a very respectable 5.1%, while the low end of the nine Dow Jones Industrial Average (INDEXDJX:.DJI) aristocrats is 3M Co (NYSE:MMM) at 2.3%, while The Procter & Gamble Company (NYSE:PG) and Johnson & Johnson (NYSE:JNJ) are both at 3.1%.
