Deep Dive: These ‘Dividend Aristocrat’ stocks have been raising their dividends for decades, and there have been no dividend cuts during the pandemic

You might be thinking: Isn’t that what they are supposed to do? Yes. But if you look at the components of the benchmark S&P 500 Index US:SPX, 63 companies have cut or suspended their dividends this year. That’s 14% of the non-Aristocrats. They are listed below, and the year-to-date returns are ugly. Of 63 dividend cutters, 56 have suffered double-digit declines (with dividends reinvested), and 49 are down at least 20%.

Among the 65 components of the S&P 500 Dividend Aristocrats Index XX:SP50DIV, gainers and decliners are pretty much evenly split for 2020, with 33 showing positive returns through Aug. 21.

The entire  S&P 500 Dividend Aristocrats Index is down 2.4% this year, which may seem a poor showing against the 6.5% return for the broader S&P 500 Index. However, large technology companies that dominate the benchmark index have had an outsized effect on its market-capitalization-weighted performance.

In the U.S. financial media, “big tech” pretty much means the FAANG stocks and Microsoft Corp. US:MSFT. This group is on fire this year and carries a tremendous weighting in the S&P 500, but only two of them are in the information technology sector, as defined by S&P Dow Jones Indices:

Together, the FAANG + Microsoft group’s combined $7.24 trillion in market capitalization makes up 25.8% of the cap-weighted S&P 500. So, no, your index fund is not as diversified as you may think.

So it’s no surprise that the tech-heavy S&P 500 has been outperforming the S&P 500 Dividend Aristocrats for many years. But if you look back 15 years, the story changes:

Over 15 years, the S&P 500 Dividend Aristocrats Index has beaten the performance of the full S&P 500 Index.

FactSet

One way to invest in the entire Aristocrats group is the ProShares S&P 500 Dividend Aristocrats US:NOBL.

The Dividend Aristocrats list

An S&P 500 stock is considered a Dividend Aristocrat if it has raised its dividend payout on common shares for at least 25 consecutive years. It makes no difference how high a stock’s current dividend yield might be. S&P Dow Jones Indices will include a newly formed company as a Dividend Aristocrat if it was formed through a merger that included a company that was already an Aristocrat and it continues raising its dividend.

Here are all 65 S&P 500 Dividend Aristocrats, sorted by current yield, with total returns for 2020 through Aug. 21:

You can click on the tickers for more about each company.

Despite no dividend cuts among the group this year, they are a possibility. For example, Exxon Mobil Corp. US:XOM decided in April to leave its quarterly dividend (paid in May) unchanged, when it traditionally raises the dividend at that time each year. Unless the company makes a move later this year, it will not longer be an Aristocrat.

Dividend cuts for Exxon and Chevron Corp. US:CVX have traditionally seemed “virtually unthinkable,” as Raymond James analyst Pavel Molchanov said in March. Sure enough, Exxon has shown a real commitment to maintaining the current payout by taking drastic measures to preserve cash during the extended period of low fuel demand. These measures include a suspension of matching 401(k) contributions for its employees.

So you need to do your own research before considering a Dividend Aristocrat, or any other company, for investment.

Dividend cutters

Here are all 63 companies among the S&P 500 that have suspended or lowered their dividend payments this year. This list is sorted by ascending total returns. Current dividend yields are included: