The bread and butter to any solid dividend growth investor portfolio. Dividend aristocrats serve as the foundation for financial independence. I really can't even begin to explain how important it is to have a portfolio composed of mostly aristocrat dividend paying stocks. Lets dig into the goods of why we need to add these names to our portfolios.
As I'm sure some of you may already know, Dividend Aristocrats are companies that have been paying increased dividends for 25 years plus. This is no simple feat if you ask me. Just think of how much these business have had to grow in order to keep these dividend payouts growing for this extended length of time. This is exactly the spot where I personally want to park my cash. Growth, that is what we are all looking for when we think of investing isn't it? I have been in the market for a few years now and let me tell you, it is very difficult to achieve a sustainable growth sometimes and dividend aristocrats really help in this department.
We have all heard the old saying slow and steady wins the race. That's exactly what I want to convince you of. I have had my fair share of losers in my portfolio because I was chasing a quick win and an idea of huge returns on my money. It's kind of funny though because typically all I get back is huge loses of money and red account numbers. Dividend aristocrats have outperformed the market for the past 10 years. Aristocrats have generated a return of 9.7% while the market has delivered a 6.3%. Here is a picture I got from simply safe dividends webpage displaying the higher return rate of the aristocrats.
The graph says it all. I continue to ask myself why I would want to park my hard earned cash with companies that don't have the track record that the aristocrats deliver. Currently 11 out of 15 companies in my portfolio are aristocrats and I feel that I still need to add more to diversify my portfolio more. I plan on adding another 5 companies to my holdings this year and let me tell you, all 5 of these additions will be aristocrats.
The average dividend yield rate for aristocrats may not be the best at 3% but I have learned of my past couples years that security and growth should be at the forefront of my investment needs. I have been dabbling with other companies but at the end of the day the quality of the dividend just isn't the same. For example, Ford is one of my largest holdings in my portfolio but they have failed to offer a dividend increase this year. The only reason I haven't left yet is due to the fact that the company is still paying out it's 5.67% dividend yield like last year and the company has a lot of value built into the share price. However, I would not have purchased into Ford if the company had failed to increase dividend payouts prior to me purchasing into it. Some could argue that I should just ditch my current position and put that money to work harder for me but I would like to exit the company at an at cost basis at least. For this to happen I would need to see a price of $12.28 per share.
I have also been burned by other non aristocrat companies that offer a high dividend yield such as GME. I made a silly mistake and sold my shares of APPL and put all that capital into GME. Not only did I miss a ton of investment gains from APPL but I also lost a decent amount of money when GME plummeted. I worked the numbers just to help with the sting of the lose and I estimated that altogether I lost some $721. This is a massive amount of money that I lost on a silly mistake and I think about how much more I would have in my portfolio if not for this lose. If anything this has served as a valuable lesson to myself and has opened up my eyes to the importance of aristocrat investing.
Another important fact to factor in is annual dividend growth. it is extremely crucial to have dividend growth once one retires. If not for increasing dividend payouts, a retiree would eventually reach an inflection point where their portfolio dividend payouts would lose to inflation rates thus reducing the potency of their dividends. Lets assume that I retire with $1 million invested purely into dividend growth funds generating me 3% yield per year. that first year my account will earn me $30,000. The average dividend payout increase amongst the aristocrats is 5%. With the new increase the following year I will earn $1,500 more in dividend income. So on and so forth. It will be very important once we retire to secure our nest egg and not have to touch a penny of our capital so that we will be able to live out our lives in financial freedom.
This is one of the single best reasons that I love dividend investing. Dividends are paid to investors and they don't have to touch their nest egg in order to pay their bills. Their is no erosion of capital, their is no 3% rule. Just pure and safe dividends. Just writing about them makes me excited about financial Independence.
The best spot to find all your dividend paying aristocrats is Wikipedia of course. This Link has a whole page dedicated to all 52 companies currently on the list of dividend aristocrats. Honestly, It would be nice to have a dividend portfolio that included all 52 companies. I could only dream of how much butt a portfolio like this would kick. As stated above, I will adding only dividend aristocrats to my portfolio for the rest of the year. I will have to do some research into my next buys but theirs not to much that could go wrong with anyone of these companies on the list. I will do an analysis based upon. next ex dividend dates, current price, yield and payout ratio.
I hope I have helped convince some of the beauty of dividends and the companies that have been paying them out for so many years. As I look towards the future of my account, It will be comprised of mainly dividend aristocrats that will help me reach my long term goal. I'm also really looking forward to my next purchase this month. It's going to be a good one.
Images provided by wikipedia and simplysafedividends.com