When it comes to investing in stocks, investors are always on the lookout for companies that can deliver steady income. That's why dividend stocks have always been a favorite. Among these, companies with the ability to grow their dividends consistently tend to be the ones that come out on top. Dividend aristocrats are companies that have consistently increased their dividends for 25 years or more. Achieving this is no small accomplishment. Paying regular dividends can be challenging for many companies, let alone raising them for over two decades.
Dividend aristocrats have delivered strong returns, outperforming other asset classes. According to a report by S&P Dow Jones Indices, from the index’s launch in 2005 through September 2023, the dividend aristocrats index achieved a total return of 10.35%, surpassing the broader market's 9.54% return over the same period. These stocks are praised for not only their consistent dividend growth and steady equity gains but also their lower volatility. Over this time, dividend aristocrats experienced a volatility rate of 15.35%, compared to the market's slightly higher 16.31%. This suggests that dividend aristocrats generally exhibit more stable price movements. Their long history of increasing dividends for 25 years or more shows their ability to reward shareholders even during challenging times, such as the 2007 financial crisis and the 2020 pandemic.
A report from Thornburg Investment Management compares the income generated from a hypothetical $1 million investment in the Bloomberg US Aggregate Bond Index versus the Dividend Aristocrats Index from 1990 to 2023. The findings showed that the income from the $1 million investment in the Bloomberg US Aggregate Bond Index decreased from around $90,000 annually in 1990 to just under $37,000 in 2023. In contrast, the income from the Dividend Aristocrats Index grew significantly, rising from about $30,000 in 1990 to more than $400,000 in 2023. The report also highlighted that dividend aristocrats outperformed the market in four of the six five-year periods between 1990 and 2023. This consistent outperformance, coupled with more stable returns, demonstrates the index's ability to deliver strong results over time.
The debate between high yields and dividend growth remains ongoing. Many investors believe that high yields are not necessarily risky. Achieving 25 consecutive years of dividend growth doesn't require sacrificing yield. According to a report by S&P Dow Jones Indices, Dividend Aristocrats have consistently provided higher yields than the broader market, typically ranging from 2.0% to 2.9% over the 26-year period from 1998 to 2022.
Some studies have emphasized the long-term advantages of high-yield stocks, noting that as dividend yields rise, both returns tend to improve and risk decreases. Hartford Funds recently conducted an in-depth analysis of this, considering annualized standard deviation, which measures the volatility of a portfolio’s returns. A higher standard deviation indicates greater historical volatility. According to the findings, from December 1969 to March 2024, high-dividend portfolios produced an annualized return of 12.3%, mid-dividend portfolios returned 10.5%, and low-dividend portfolios earned 9.7%. The annualized standard deviations for these portfolios were 14.1%, 16%, and 20.8%, respectively.
Our Methodology:
For this list, we looked at a group of 67 dividend aristocrat companies, which are known for raising dividends for 25 years or more. From this list, we chose 7 stocks with the highest dividend yields as of November 26 and arranged them in order from lowest to highest yield. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 900 as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
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T. Rowe Price Group, Inc. (NASDAQ:TROW) ranks fifth on our list of the best dividend aristocrat stocks. The American asset management company offers a wide range of related services to individuals, institutions, and businesses. It reported mixed earnings in the third quarter of 2024. The company's revenue came in at $1.8 billion, which, though, saw a 7% hike from the same period last year, missed analysts' estimates by over $61 million. It ended the quarter with over $1.63 trillion in assets under management, up from $1.34 trillion in the prior-year period.
T. Rowe Price Group, Inc. (NASDAQ:TROW) has traditionally excelled in mutual funds, a product category now facing competition from ETFs and alternative assets. This trend has raised concerns among investors. However, the company benefits from loyal assets and is actively adapting to align with shifting customer preferences. This indicates that the company is positioned to navigate the evolving industry landscape effectively. With no long-term debt on its balance sheet, it has the financial strength to restructure and refine its business strategy. The stock has surged by over 14% since the start of 2024.
T. Rowe Price Group, Inc. (NASDAQ:TROW) currently offers a quarterly dividend of $1.24 per share, having raised it by 1.6% earlier this year. The company has been rewarding shareholders with growing dividends for the past 38 consecutive years. With a dividend yield of 4.03%, as of November 26, TROW is one of the best dividend aristocrat stocks on our list.
As per Insider Monkey's database of Q3 2024, 26 hedge funds held stakes in T. Rowe Price Group, Inc. (NASDAQ:TROW), down from 28 a quarter earlier. These stakes are worth $422.6 million in total. Fisher Asset Management owned 2 million TROW shares, becoming the company's leading stakeholder in Q3.
Overall TROW ranks 5th on our list of the best dividend aristocrat stocks to buy. While we acknowledge the potential for TROW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TROW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
