A Look at Dividend Aristocrats

 

A quick search for "Dividend Aristocrats" on the Internet will turn up a lot of companies that pay out steady income. Some of these companies are S&P 500 staples, such as Church & Dwight and Consolidated Edison. Others aren't - but they're a great place to start. Dividend Aristocrats have a strong track record of paying out regular dividends and have strong growth potential.

S&P 500 companies

The S&P 500 contains 65 Dividend Aristocrats, companies that have consistently raised their dividends for at least 25 years. Dividend growth for these companies is double-digit for at least the last 10 years. These companies trade for lower valuations than the market. Some of the companies that have earned the status of Dividend Aristocrats include insurance broker Brown & Brown, a financial services company, and consumer staples firm Church & Dwight.

To be considered an Aristocrat, a company must have been a member of the S&P 500 for 25 consecutive years. It must also have a minimum daily share value of $5 million. S&P Dow Jones Indices updates this list annually in January. At the start of each quarter, index managers reweight the index to determine which companies have achieved the highest percentage of dividend increases.

S&P 500 high yield index

The S&P 500 High Yield Index is a benchmark for income-seeking equity investors. It tracks the performance of 80 of the largest high-yield companies within the S&P 500, ensuring that the total return for high-yield investors is equal, irrespective of size. The index is composed of stocks with dividend yields above four percent, as well as those that pay less than four percent.

Several methods are available to measure the performance of U.S. corporate debt. One way involves listing all U.S. companies by their yield, but this approach can overlook many rising stars. A more thorough approach focuses on high-yield companies by limiting the field to a mere 80. The list also requires a positive return history for companies to make the cut. Past pleasantries do not guarantee future results.

Church & Dwight

The baking soda company, Church & Dwight (CHD), has joined the growing list of companies getting punished for soft guidance. With its shares down almost 15% from the high of $105 a share, investors are worried about a weakening economy, a war in Europe and inflation wreaking havoc on consumers' wallets. Fortunately, this company is among the Dividend Aristocrats and has many positive attributes that can make it a solid investment.

One of the main characteristics of a quality dividend stock is its growth strategy. As a leading consumer goods company, Church & Dwight is able to grow its profits through economic cycles and share that growth with its shareholders. Moreover, its management team has extensive experience in growing smaller brands. All of this translates to a dividend growth that has been consistently higher than earnings growth in recent years. Church & Dwight is also an excellent investment for investors looking for a solid company with a growing dividend payout.

Consolidated Edison

Several factors have contributed to the impressive dividend history of Consolidated Edison, which has delivered 47 years of consecutive growth and a 3.54% yield. Recently, the company reported its Q1 earnings, generating 15.3% year-over-year revenue growth and $3.42 billion in revenue for the first quarter. As of this writing, the stock is up more than 4% year-to-date. However, investors should be aware of the company's many risks.

While Consolidated Edison stock looks overvalued at the moment, it is still a solid income stock. The 3.7% dividend yield and the company's plan to raise it every year make it a solid hold for income investors. Consolidated Edison is priced at $83 and is rated as a hold at this time. Investors who are more risk-averse may want to consider a utility stock instead.