Dividend Aristocrats

Dividend Aristocrats

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Countless investors are seeking an investment portfolio that strikes a harmonious balance between growth, income, and security. In this series, we’ll explore stocks that meet specific dividend criteria.

In today’s video, we will be focusing on Dividend Aristocrats.

What are Dividend Aristocrats?

Dividend Aristocrats are U.S. public companies that have successfully raised their dividends for 25 or more consecutive years. Unlike Dividend Challengers or achievers, which have a shorter track record, Dividend Aristocrats boast an impressive and extended history of consistent dividend growth. They are a prestigious group, having achieved the second highest status in the realm of dividend-paying companies, just behind kings.

Why Invest in Dividend Aristocrats, and What Are the Benefits?

Income Generation:

  • Dividend Aristocrats are renowned for their ability to generate a consistent and reliable source of income. For income-focused investors, this is a paramount advantage. The regular dividend payments can supplement other income sources, making them especially appealing to retirees or those seeking steady cash flow.
  • Unlike relying solely on capital gains, which can be unpredictable and market-dependent, dividends offer a dependable stream of income. Investors can count on these payments as a source of financial support, helping to cover living expenses, reinvest in the market, or simply enjoy a more secure financial position.

Long-Term Growth Potential:

  • Beyond providing income, Dividend Aristocrats often exhibit long-term growth potential. These companies have a proven track record of success and stability. Their ability to consistently grow dividends over 25 years or more indicates financial strength and management quality.
  • As such, investors can benefit not only from the income but also from potential capital appreciation. These companies are well-positioned for growth in the long run, which can lead to an increase in the stock’s value over time. This dual benefit provides investors with a means to achieve both income and wealth accumulation.

Risk Mitigation:

  • The historical trend of increasing dividends suggests financial stability and resilience. Companies that can weather economic downturns and still increase payouts for over two decades are often better equipped to face challenges. This resilience translates to lower investment risk.

In conclusion, investing in Dividend Aristocrats offers a comprehensive set of benefits for investors. They provide a dependable source of income, the potential for long-term growth, risk mitigation, and an opportunity to enhance portfolio diversification. These benefits make Dividend Aristocrats a prestigious and well-rounded option for those seeking a balanced and reliable investment strategy.

How did I build this portfolio?

Creating a successful dividend challengers portfolio involves a structured approach that can help you maximize the benefits of these promising investment opportunities. Here are the key steps I considered to build this little template portfolio of dividend challengers framed in a way that can help you if you want to make your own:

Stock Selection:

  • Identify and Research: Begin by identifying potential Dividend Aristocrats. Look for publicly traded companies with an established track record of raising dividends for 25 or more consecutive years. Online stock screeners, financial reports, and investment news can be valuable resources.
  • Historical Dividend Increases: Examine the history of dividend increases for each company. The longer the streak, the better. Analyzing financial statements, earnings reports, and management discussions can help you assess their ability to maintain consistent dividend growth.
  • Financial Health: Evaluate the financial health of the companies you’re considering. Key financial metrics, such as the debt-to-equity ratio, cash flow, and dividend payout ratio, can help you determine if the company can sustain its dividend growth.

Diversification:

  • Spread The Investments around different sectors and industries: Diversification is a fundamental strategy for managing risk. By spreading your investments across various sectors and industries, you reduce your vulnerability to sector-specific market fluctuations.
  • Risk Mitigation: The diverse nature of your holdings ensures that even if one industry experiences a downturn, your portfolio’s performance won’t be overly affected. This safeguards your investments and maintains a degree of stability in your portfolio.

Ok, let’s see the stocks!

ORealty Income Corporation
MDTMedtronic plc
XOMExxon Mobil Corporation
MCDMcDonald’s Corporation
ITWIllinois Tool Works Inc.
GDGeneral Dynamics Corporation
ADPAutomatic Data Processing, Inc.
NUENucor Corporation
IBMInternational Business Machines Corporation
SPGIS&P Global Inc.
CLXThe Clorox Company
ESSEssex Property Trust, Inc.

O – Realty Income

Realty Income, known as “The Monthly Dividend Company,” is a well-established company. Their primary goal is to invest in both people and properties to provide reliable monthly dividends that grow over time. Realty Income has a remarkable track record, having paid 637 consecutive monthly dividends over its 54-year history and increasing the dividend 121 times since becoming a publicly traded company in 1994 (NYSE: O).

MDT – Medtronic plc

Medtronic is a global medical technology company that designs, manufactures, and sells a wide range of medical devices for various healthcare needs. They provide solutions for heart-related issues, surgical procedures, diagnostics, patient monitoring, and more. Medtronic also serves specialists in fields like neurosurgery and diabetes management. Founded in 1949, they are headquartered in Dublin, Ireland, and operate worldwide.

XOM – Exxon Mobil Corporation

Exxon Mobil Corporation is a company deeply involved in the exploration and production of crude oil and natural gas, with operations spanning the United States and international locations. Beyond these core operations, Exxon Mobil is actively exploring opportunities for lower-emission businesses, including carbon capture, hydrogen, and cleaner fuels. Established in 1870, the company’s headquarters are located in Spring, Texas.

MCD – McDonald’s Corporation

McDonald’s Corporation operates and franchises McDonald’s restaurants in the United States and internationally. The company’s restaurants offers a range of fast food as well as breakfast menu and hot beverages. McDonald’s Corporation was founded in 1940 and is headquartered in Chicago, Illinois.

ITW – Illinois Tool Works Inc.

Illinois Tool Works Inc. is a global industrial manufacturing company with seven segments that create and distribute a wide range of industrial products and equipment worldwide. They cater to industries like automotive, food services, and construction and sell their products directly to manufacturers and through independent distributors. Founded in 1912, the company is based in Glenview, Illinois.

GD – General Dynamics Corporation

General Dynamics Corporation is a global aerospace and defense company operating in four main segments. These include aerospace, marine systems, combat systems, and technologies. They are involved in producing business jets, designing and constructing submarines and naval vessels, manufacturing land combat solutions, and delivering information technology solutions and advanced technologies. The company, founded in 1899 and headquartered in Reston, Virginia, plays a significant role in the global aerospace and defense industries.

ADP – Automatic Data Processing, Inc.

Automatic Data Processing, Inc. offers cloud-based human capital management solutions worldwide. They have two main segments: Employer Services, which includes HR outsourcing solutions, and the Professional Employer Organization (PEO) Services, providing HR services to small and medium-sized businesses. Their offerings cover payroll, benefits, talent management, and more. The company, founded in 1949, is headquartered in Roseland, New Jersey.

NUE – Nucor Corporation

Nucor Corporation is a company specializing in the manufacturing and sale of steel and steel products. Their operations are divided into three key segments: Steel Mills, Steel Products, and Raw Materials. The Steel Mills segment produces a wide range of steel products and offers trading and distribution services. Steel Products provide various steel-related products for nonresidential construction applications, including tubing and conduits, along with piling materials. The Raw Materials segment deals with direct reduced iron and trades in ferrous and nonferrous metals and scrap, catering to industries like agriculture and construction. Founded in 1905, Nucor is headquartered in Charlotte, North Carolina.

IBM – International Business Machines Corporation

International Business Machines Corporation (IBM) and its subsidiaries offer integrated solutions and services on a global scale, organized into four key business segments: Software, Consulting, Infrastructure, and Financing. IBM is also engaged in collaboration with Siemens Digital Industries Software. Founded in 1911 as Computing-Tabulating-Recording Co., IBM is headquartered in Armonk, New York.

SPGI – S & P Global Inc.

S&P Global Inc. and its subsidiaries are key players in the finance and industry sectors, offering credit ratings, investment benchmarks, and analytical solutions on a global scale. Their operations are divided into six segments: These segments cater to various market needs, from providing independent credit ratings and investment benchmarks to supplying valuable information on commodities, analytics for multiple asset classes, and technical knowledge for engineering and product design. Founded in 1860, S&P Global is headquartered in New York and plays a crucial role in shaping financial and industrial markets.

CLX – The Clorox Company

The Clorox Company is a global manufacturer and marketer of consumer and professional products, operating in four segments: Health and Wellness, Household, Lifestyle, and International. They offer a wide range of products, including cleaning, personal care, and food items under various brand names. These products are sold through various retail channels. The company, founded in 1913 and headquartered in Oakland, California, serves both domestic and international markets.

ESS – Essex Property Trust, Inc.

Essex Property Trust, Inc., an S&P 500 company, is a fully integrated real estate investment trust (REIT) that acquires, develops, redevelops, and manages multifamily residential properties in selected West Coast markets. Essex currently has ownership interests in 252 apartment communities comprising approximately 62,000 apartment homes with an additional property in active development.

The Portfolio

So those are the stocks in the portfolio, let’s see what it looks like when we put them all together!

I decided to market weight the portfolios, this will probably be the biggest question asked when it lands on the Trading 212 pie library as the allocations might look a little bit weird.

Because the classifiers are only based on the number of years of dividend growth it makes for an unusual mismatch of company sizes.

Therefore, in my opinion, it makes more sense to market weight the stocks in the pie rather than equally weight the tiny ones with the huge mega caps.

This obviously took more time to do it this way but it means that the investment won’t be overwhelmed by movements in the smaller-cap stocks

For the Dividend Aristocrats here’s what the pie looks like:

And for those who will inevitably ask, here is the yield, at the time of making the video at least. Remember yield changes a little every time the market opens.

The yield at the time of making the video is a little over 3%

If you want to see this pie in real life then you can follow the link here

Finally, as I know this will get asked, will I be maintaining this pie?

Obviously, as I have said before these pies take a lot of hard work to create and maintain, if you are taking it seriously so I will be maintaining the pies in this series as long as there is significant support from the community.

Unfortunately, if only a small number of people support the pie, I am better off focusing on things you like more.

You should see this pie as more of an example of a certain type of dividend-paying stock rather than a comprehensive portfolio for you to invest in!

Check out the other videos in the series and guess which one will perform the best!