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Philip van Doorn

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Jan. 18, 2020, 9:52 a.m. EST

Afraid of sky-high stock valuations? These ‘Dividend Aristocrats’ have yields over 3%

The group is known as a growth investment, but they provide steady income too

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By Philip van Doorn, MarketWatch

Chevron is an S&P 500 Dividend Aristocrat, and has a dividend yield of more than 4%.

U.S. stock indexes are at record highs, and valuations relative to earnings are very high. So it may be a good time to take a different approach with some of your investment portfolio, and dividend stocks may fit the bill.

This chart shows forward price-to-earnings valuations (based on consensus earnings estimates for the following 12 months) for the benchmark S&P 500 Index /zigman2/quotes/210599714/realtime SPX -1.64% over the past 20 years:


The forward P/E for the index has increased to 18.5 from 15.2 a year ago. Except for a short period in early 2018, the market’s current valuation to estimated earnings is at its highest level since June 2002.

One reason you might dedicate part of your portfolio to higher-yielding dividend stocks, especially those with very long track records for raising payouts, is that you would enjoy getting paid while waiting out a market decline. Another might be that you are looking to earn income from your investments without having to draw down capital.

Dividend Aristocrats

The S&P Dividend Aristocrats /zigman2/quotes/210598428/delayed XX:SP50DIV -0.08% are companies that have raised their regular dividend payouts consistently. The group as a whole tends to be considered a growth investment, because many of the dividend yields are low and the group has outperformed the broader market over very long periods.

But today we’re going to focus on current income by simply listing the Aristocrats with the highest dividend yields.

The financial media are understandably fixated on investment growth, but income has its place, especially if you need it and if you understand the incredible dividend tax advantage that U.S. investors enjoy.

The S&P 500 Dividend Aristocrats Index is a subset of the benchmark S&P 500 Index. The 57 Dividend Aristocrats have raised their regular dividend payouts for at least 25 consecutive years. It makes no difference how high or low the dividend yield may be. For example, Roper Technologies /zigman2/quotes/204270015/composite ROP -1.69%  has a dividend yield of only 0.55%.

An easy way to invest in the Dividend Aristocrats as a group is the ProShares S&P 500 Dividend Aristocrats ETF /zigman2/quotes/208747379/composite NOBL -1.59% , which holds all 57 stocks with an equal weighting. The ETF was established in 2014.

Let’s go further back and compare the performance of the S&P 500 Dividend Aristocrats Index to the entire S&P 500 for various periods, with dividends reinvested, through Jan.12:

Index 1 year 3 years 5 years 10 years 15 years 20 years
S&P 500 Dividend Aristocrats 24% 50% 71% 287% 373% 659%
S&P 500 28% 53% 78% 254% 276% 236%
 Source: FactSet

The Dividend Aristocrats Index has trailed for one, three and five years, but that underperformance is modest compared with how much it has outperformed the benchmark for 10, 15 and 20 years.

The difference may be put down to the compounding effect of reinvested dividends, but also to the dominance of technology companies during the extended bull market and the incredibly stimulative policies of central banks around the world. Negative or very low interest make U.S. stocks a haven. The S&P 500 has a weighted aggregate dividend yield of 1.83%, nearly the same as the current yield on 10-year U.S. Treasury notes /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.14% .

-72.20 -1.64%
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XX : S&P Global Thematic Indices
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US : U.S.: Nasdaq
$ 495.63
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Volume: 472,667
Sept. 21, 2023 4:00p
P/E Ratio
Dividend Yield
Market Cap
$53.80 billion
Rev. per Employee
US : U.S.: Cboe BZX
$ 90.28
-1.46 -1.59%
Volume: 458,112
Sept. 21, 2023 4:00p
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