While early-stage investors into the likes of Google, Netflix, and Microsoft have made fortunes, companies raising their dividend pay-out annually with strong, long-term growth have gone almost unnoticed in the recent decades since tech stocks began booming from the eighties onwards.
I want to focus on a special group of companies within the dividend-paying universe. These are called the 'Dividend Aristocrats' and are made up of 53 companies listed on the S&P 500 Index.
To be labelled a Dividend Aristocrat, a company must increase its pay-outs to shareholders for a minimum of 25 consecutive years or more, something not many can do year after year, because competitive forces shrink their margin, or disruptive technologies make their niche obsolete.
The Aristocrats are comprised of 11 different sectors, making the group diverse and versatile, which is ideal for any portfolio.
Although the Aristocrat group doesn't reflect the distribution of companies that make up the S&P 500 Index, companies based in the materials, consumer staples, and industrial sectors shine brighter in the Aristocrats group, while the S&P 500 is made up more of technology, real estate, and energy companies.
Dividends have made up more than 45% of historical total stock market returns.
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Numbers do not lie, and history has shown us that these elite dividend-paying companies perform stronger and show less volatility than the S&P 500 Index overall. This is why my own portfolio is loaded-up with them.
With a higher average ROI, Aristocrat companies can help us to take full advantage of dividend compounding and reinvesting, further adding to your purchasing power and fighting back decades of inflation.
When seeking the optimal ROI, you need to know the best of the best. The Dividend Aristocrats are proven long-term performers, but it's important to know which companies are the true elites and most likely to retain the aristocrat status.
While all Aristocrat companies are strong performers and show great potential, it is inevitable that some will perform better than others, but credit is given because they have performed well for investors for at least a quarter of a century.
To remain a Dividend Aristocrat, there is no minimum payment increase the respective company must meet, and the share price's performance does not affect the company's aristocrat status.
Dividend Compounding requires enormous patience and discipline!
Reinvesting dividends for the long-term takes 20 – 30 years.
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