Investing in dividend stocks, Dividend Kings, and Dividend Aristocrats
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First Published date: 15. September, 2022Last Updated: 21. January, 2023Fact-checked by Adrian Müller
An excellent thing about investing in dividend stocks is that you have many choices. These are companies that have been operating for numerous years. Therefore, investors can go back and check all their records when investing in dividend stocks, dividend kings, and aristocrats.
Dividend kings and dividend aristocrat companies have been paying out an increasing dividend rate consecutively for an extended period. In the case of dividend kings, they must pay for 50 consecutive years. In the case of dividend aristocrats, it’s 25 years.
Dividend aristocrats also need to be in the S&P 500. These are stable companies and have stood the test of time. But are they excellent investments? Let’s dive into the details.
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79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
What are Dividend King and Dividend Aristocrat Stocks?
Simply put, dividends are the distribution of a company’s income. They’re paid out to its shareholders. Dividends are also paid in different intervals – however, quarterly dividend payments are more common.
So, choosing companies that pay high dividends is a big topic. Investors can be categorized into two categories – dividend kings and dividend aristocrats.
Dividend kings are companies that pay dividends consistently. However, it can be challenging. To be more specific, dividend kings are companies that have paid increasing dividends for 50 years. In comparison, dividend aristocrats pay increasing dividends for at least 25 years.
Therefore, some dividend kings can also be dividend aristocrats. Not all dividend aristocrats can be kind, however. This could be for a couple of reasons. For example, a company has not existed for 50 years. Or they aren’t in the S&P 500.
Criteria for Dividend Aristocrats
To help you understand the concept further, let’s dive deeper into the criteria for a dividend aristocrat. While the requirement to be a dividend king is pretty simple – pay an increased dividend rate for 50 straight years, aristocrats have a broader situation.
The first and most crucial requirement is how long they have paid dividends. Dividend aristocrats must pay an increased rate of dividends for 25 consecutive years. The dividend rate is calculated per share.
Furthermore, the company should also have a market capitalization of at least $3 billion with an average stock of $5 million trading value. They should also be on the S&P 500 company list.
Understanding the S&P 500
The S&P 500 is a registered trademark of the S&P Dow Jones indices. It’s an index for the top 500 of the largest US companies. You cannot talk about investing in dividend kings or dividend aristocrat stocks without mentioning the S&P 500. You have seen us using this term a couple of times now.
For a company to qualify as a dividend aristocrat, it must be registered on the S&P 500 regardless if it paid out increasing dividends over the past 25 years. The index can change depending on the company’s market capitalization and more.
However, investors cannot invest directly in the S&P 500 because it’s only an index of the companies in it. Think of it as a record of the top 500 companies. Therefore, investors can use it as a tool and benchmark. The index calculates the market capitalization by this formula:
Market capitalization / Total of all market capitalization
The list of indices is updated at the beginning of every year and can help you decide what your investments should be. Every January, companies are either removed or added. However, a stock rarely loses its status.
In addition, it’s also reweighted when a new quarter starts. This allows the size of each to be reset. As such, they can repeatedly make up an equal part of the index. Since dividend aristocrats are a part of this index, it’s safe to assume they’ll do well over the years.
Why Invest in Dividend Kings and Dividend Aristocrats?
You should know by now that investment is risky, and no matter how good you are at investing, there are bound to be some failures and losses. It’s possible to lose money by investing in dividend stocks too.
However, since companies that are dividend kings and dividend aristocrats have been around for a long time, you can study patterns and historical data. By doing this, you reduce the risk. As such, you don’t need to become an expert in investing to get a respectable return.
To invest in dividend stocks properly, you’ll need research and knowledge. Of course, being savvy about investing in general also helps. However, many investors either don’t have sufficient knowledge, are careless, or don’t know what they’re doing.
Suppose you can be disciplined and gain experience and knowledge. In that case, you can become a successful investor by investing in dividend stocks. In addition, since dividend kings and dividend aristocrats keep increasing their dividend rate, you can build up generational wealth. It’s one of the biggest advantages.
Plus500 is a trusted global brand that offers an easy-to-use trading platform for online traders, alongside access to share trading, crypto and a thorough selection of CFDs.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Pros and Cons of Dividend Kings and Dividend Aristocrats
One of the main reasons investors decide to invest in dividend stocks is to have passive income. You can build long-term wealth if your portfolio has reputed dividend kings or dividend aristocrats’ stocks.
Investing in dividend stocks is among the best investment decisions for many beginners (and experts).
Advantages of Dividend Kings and Dividend Aristocrats
But there are both advantages and disadvantages to investing in dividend stocks. Especially dividend kings and dividend aristocrats.
Great Retirement Portfolio
Dividing king companies are perfect if you want to create a portfolio that can see you through your retirement years. They provide a source of reliable and continuous income. The best part is some dividend king companies give out dividends higher than the S&P 500 average.
Great Passive Income
If you are not thinking of retirement but still want passive income, these stocks are great options too. Many people, especially young people, are looking for passive income – which is always great.
You’ll be able to make some extra money apart from your profession or full-time job. Dividend king and dividend aristocrat portfolios can be a great source of passive income. Additionally, you can reinvest the dividends too!
This gives you a snowball effect, and as a result, you can make more passive income and get bigger returns.
Tried and True Stocks
Since dividend kings and aristocrats have been in business for so long, you can be sure about your investment. That isn’t to say that you’ll always make a good return. Remember that all investments have their inherent risks.
But dividend king and dividend aristocrat stocks are safe investments because they’re giant corporations. This is good for someone new to investing and who wants to start with a solid base. However, this can be a bad thing too. More on that a bit later.
Stable Company Stocks
One of the main takeaways is that these stocks are stable. Companies that can maintain high dividend rates mean that their business is pretty stable.
This makes it a relatively safe investment. It also means that the products are most likely recession-proof. This makes them resilient, at least to some degree, to economic downturns.
Plus500 is a trusted global brand that offers an easy-to-use trading platform for online traders, alongside access to share trading, crypto and a thorough selection of CFDs.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Disadvantages of Dividend Kings and Dividend Aristocrats
Although there are many advantages, investing in large dividend stocks also has downsides.
Dividends Incur Income Taxes
Dividends from dividend kings and aristocratic companies are subject to income tax. This might turn some investors away. However, this will be fine for most people.
Possibility of Low Diversification
A common basic stock investing advice you’ll hear is to diversify. This is because diversifying reduces risk significantly. If you have stock investments in all kinds of industries, you won’t be affected that much if one of your investments fails.
You’ll have other investments in other industries that can make up for the loss. Then, when the economy is in a generally good position, all your assets will start pulling in money. However, since these stocks mainly comprise a handful of industries, diversification can be difficult.
These dividend stocks are primarily in the consumer goods, healthcare, and perhaps utility industries. So, investing in a narrow range of sectors could be risky.
Dividend Paid Out Instead of Pursuing Growth Opportunities
Dividends aren’t free money, of course. It comes at an opportunity cost. Companies may need to forego specific growth opportunities to pay dividends to shareholders.
How to Create a Dividend King or Dividend Aristocrat Portfolio
Creating a portfolio of dividend kings and dividend aristocrats is relatively easy. You could argue it’s one of the more accessible portfolios to develop as all dividend stocks are in top indices like the S&P 500.
You could pick an industry you’re comfortable investing in and buy stock of companies operating in that industry within that index. However, there are some best practices and intelligent investment moves every investor must keep in mind.
What are Your Financial Situation and Goals?
This is the most important thing about it. Before investing in dividend stocks, you must assess your financial situation and goals. How much of your assets can you allocate to buying and investing in stocks?
Moreover, how much time can you invest in growing and maintaining these stocks? All these are essential questions you must answer before investing. The good thing about these dividend stores is that they’re all reputable businesses.
They have been at it for a long time and are more or less a stable business. So, you may not need to research all that much. However, there’s no substitute for being well-informed and disciplined.
Your Investment Style
Some investors are aggressive. In contrast, some are more conservative. You should look for high-growth stocks if you’re a risk taker and an aggressive investor.
But if you’re a conservative investor, you’ll prefer to create a portfolio of stable businesses that have stood the test of time.
Award-Winning Trading Brokers:
Rating:
Regulated By:
FCA, CySEC, ASIC, FMA, FSA, FSCA
CySEC (EU), FCA (UK), ASIC (Australia)
BaFin, FCA
Demo Account:
✔ Free
✔ Free
✔ Free
Live Account:
$100
$200
0
Spreads From:
Variable from 0.5 bps
Variable from 1.0 bps in EUR/USD
Variable from 0.4 bps
Selection Of Instruments:
2000+
1000+
17.000+ (FX, Stocks, CFDs, Commodities and more)
Support:
24/7
24/7
24/7
Payout:
1 – 3 Days
1 – 3 Days
1 – 3 Days
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
What Do You Have Knowledge In
As we mentioned earlier, investing has its inherent risks. But that doesn’t mean it’s all a game of chance – quite the contrary. Investors investing in industries they know about will naturally have higher chances of success.
So, industry knowledge and a deeper understanding have an impact. Ideally, you want to create a portfolio of stocks in industries you have experience or knowledge about. If you’re a new investor or a beginner, there’s no need to worry. There are plenty of quality resources to learn to trade and invest.
The Right Strategy
Lastly, you have to develop the right strategy. Getting the ‘right’ strategy isn’t a one-size-fits-all endeavor. What works for one investor might not work for others. Perfecting a trading strategy also depends on experience. Investors continuously revise and rebalance their strategies.
Wrapping Up
Investing in dividend stocks, dividend kings, and aristocrats is an excellent way to earn a healthy passive income. It’s also a good strategy for building generational wealth. However, you must understand that discipline, patience, and knowledge are required.
Dividend kings and dividend aristocrat companies have been in the business for a while. So, there might be a growth opportunity.
However, a stable and recession-proof business is something that many investors appreciate. If you play your cards right, you’ll see a return. But it isn’t an overnight thing by any means.
About the author – T.R. Carnegie
I am a retired investment banker who has invested heavily in energy stocks since 2005. My goal is to help people understand what is really going on behind the scenes and to provide them with the information they need to take control of their financial future. These days, I am an energy stock investor who has made money from oil, natural gas, coal, nuclear power, wind, solar, biofuels, storage, and battery technologies. In this blog, you’ll find ideas about investing in companies that will help us reduce our dependence on fossil fuels, increase access to clean energy, improve efficiency in manufacturing processes, and build products that save people money and protect the environment.
