Royal Returns on Your Investments

The Dividend Aristocrats are S&P 500 stocks that have increased their dividend payouts for 25 consecutive years or more.* For investors, buying and holding dividend aristocrats can be a viable path to long term wealth creation.

Here’s an example: Suppose you purchase 100 shares in a company where each share costs $10. Your total investment is $1,000 (100 shares x $10/share).  Let’s say the shares pay an annual dividend of $0.25 or 2.5% per share ($0.25/$10). Your total income is $25 in the first year ($0.25 x 100).

Now, let’s assume the company increases their dividend at an annual rate of 5%. After 25 years your income on the portfolio is now $85 and the yield on the $1,000 is 8.5%, which means you’re almost beating the market on yield alone. 

If the stocks rise over time, your total return could beat the market. For instance, over the past 10 years, the S&P 500 Dividend Aristocrat index, with growing dividends as a tailwind, has returned 14.67% on an average annual basis, whereas the S&P 500 index returned just 13.24%.

David R. Evanson is a financial journalist in Philadelphia.

* Anonymous, (October, 2019). S&P 500 Dividend Aristocrats. Wikipedia. Retrieved November, 2019