Buy-and-hold dividend growth investors know something about the best dividend stocks that less experienced yield-hunters don’t: it pays to be patient when you’re investing for income.
Shares in companies that raise their payouts like clockwork decade after decade can produce superior total returns over the long run, even if they sport apparently ho-hum yields to begin with.
That’s partly because regular dividend increases lift the yield on an investor’s original cost basis. Stick around long enough, and the modest yield you received on your initial investment can hit double digits one day.
Companies with long histories of annual dividend growth also offer some peace of mind. After all, any company that manages to raise its dividend year after year—through recession, war, market crashes and more—is demonstrating both its financial resilience and its commitment to returning cash to shareholders.
“Investing in companies with sustainable dividend growth can help augment total returns and reduce volatility while providing a growing income stream,” write David Park and David Chalupnik, portfolio manager and head of U.S. active equities portfolio management, respectively, at Nuveen.
Put another way, dividend growers not only go along for the ride in bull markets, but they also tend to hold up better in market drawdowns.
If you’re looking to add dependable dividend growers to your portfolio, you can start by checking out the S&P 500 Dividend Aristocrats. This is an index of 67 companies in the S&P 500 index that have raised their payouts annually for at least 25 consecutive years.
Although they’re scattered across pretty much every sector of the market, they do all share one thing in common: a commitment to reliable and long-term dividend growth.
There were two changes to the Dividend Aristocrats announced in January 2024. Walgreens Boots Alliance (WBA) was removed from the index after the pharmacy chain slashed its dividend by almost half in late 2023. WBA had raised its dividend annually without fail for almost a half-century before the cut.
At the same time, industrials supplier Fastenal (FAST) was added to the Dividend Aristocrats in recognition of its quarter-century streak of annual dividend hikes.
Other changes to the Dividend Aristocrats over the past year include the removal of VF Corp. (VFC) and the addition of Kenvue (KVUE), which was spun off from fellow Aristocrat Johnson & Johnson (JNJ).
The Dividend Aristocrats have been among the best dividend stocks for income growth over the past few decades, and they’re a great place to start if you’re looking to add dividend battleships to your long-term portfolio.
Alternatively, investors can gain exposure to every stock in the S&P 500 Dividend Aristocrats index via the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). The exchange-traded fund with $11.5 billion in assets under management has an expense ratio of 0.35 percent.
