Eoin Treacy's view Given the uncertainty that many have expressed about the potential for the US economy to remain on a growth track and avoid a double dip recession, investors are increasingly looking at cashflow to compensate for the increased perception of risk in equity markets. David highlighted the fact that Johnson & Johnson has increased its dividend every year for the last 48 in Comment of the Day on August 24th and we have had a number of items focusing on this subject over the last month. Such an impressive record of increasing dividends got me to thinking about what other shares might have a similar payout rate.

Companies with secure, reliable cash flow generating businesses that dominate their respective niches and manage their affairs in such a way that they can reward investors are worth a second look. When they also offer leverage to the growth of the global middle class they enter a category which has continued to outperform in what has otherwise been a difficult period for stock market investors. I didn't expect there to be many with a similar record to JNJ and there aren't. However, I found an index disseminated by S&P that holds nothing but companies that have grown their dividends for at least the last 25 years.

The S&P500 Dividend Aristocrats Index contains 42 shares, many of which are household names and have also appeared in our other reviews of high yielding shares. Here is how S&P describe the Index:

The S&P 500 Dividend Aristocrats index is a measure of performance of true blue-chip companies. Not only are the index constituents current members of the S&P 500, they have also been paying increasing dividends year after year for at least 25 years. Given these criteria, the number of "Aristocrats" within the S&P 500 has remained relatively stable over the years.

By equally weighting these companies in the index, the S&P 500 Dividend Aristocrats best represents the performance of this group and treats each constituent as a distinct investment opportunity without regard to its size.

The Index of these shares continues to outperform the S&P500 both in nominal as well as total return terms. The total return index is of particular interest since its 2007 peak is so far above its 2000 high, demonstrating that a focus on yield was a winning strategy throughout the last decade when the S&P500 largely went sideways.

I placed the 42 shares in a section in my Favourites and ran them through the Chart Library's High Low Filter. Here are detailed instructions on how you might do the same:

How do I create a list of my favourite instruments?

How do I use the Chart Library's Performance Filter?


18 of the 42 are hitting at least new 3-month highs with 6 hitting better than 12-month new highs. None are making new lows. This pattern of outperformance, for such a select group of companies, is quite remarkable and the above ratio charts show no indication that this is about to end.

There are a number of additional dividend aristocrat indices for other geographical areas which I will profile over the coming days.