Investing in dividend stocks is a popular investing strategy. Dividend paying companies are generally mature businesses that have the cash flow to return profits to their stockholders. Dividends are a critical component of total return, since 1930 dividends have accounted for 40% of the U.S. stock market’s return.  As of March 31, 2012 Dividend Aristocrats beat the S&P 500 Index over the last 1, 3, 5, 10, 15, and 20-year periods. [Also See: How To Pick Good Dividend Stocks]

dividendsThe Dividend Aristocrats had been companies in the S&P 500 that have had dividend increases for at least 25 consecutive years.  In July of 2012 the S&P Dow Jones Indices which manages the list, decided to require only 20 consecutive years of dividend increases rather than 25. As a result, the broad list of Aristocrats drawn from the S&P 1500 Composite index of large, mid, and small caps will now include 14 new stocks, including four that are members of the S&P 500. The reason that aristocrats are considered to be royalty is because they have always treated their stockholders well, even through, adversity.

I browsed through several financial publications to determine which used the most comprehensive criteria to determine its top ten dividend aristocrat picks, for 2013.  I found these standards to be the most comprehensive.

  1. Each stock must have a liability-adjusted cash flow yield* (using five-year average cash flow) greater than the yield of a 10-year U.S. Treasury note.
  2. Each stock must have a return on invested capital greater than 10% (using five-year historical data).
  3. Each stock must have appreciated in value over the past decade.
  4. Each company must have a five-year average tax rate greater than 25%.
  5. Each company must have a “quick ratio” greater than 1.

Related: Dividend Reinvestment Plans (DRIPS) & Their Benefits

When using the above criteria these are the top five picks for the year 2013. These picks considered, each company’s financial strength, its dividend yield and its potential for capital appreciation.

The McGraw Hill Company (MHP) provides information services for the financial, commodities and commercial, and education markets worldwide.

Stock Price Dividend Yield 1 year appreciation
$53.87 $1.02 1.90% 18.68%

 

Leggett & Platt Inc. (LEG) designs and produces various engineered components and products worldwide.

Stock Price Dividend Yield 1 year appreciation
$28.00 $1.16 4.1% 23.02%

 

V F Corporation (VF) designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe.

Stock Price Dividend Yield 1 year appreciation
$149.00 $3.48 2.3% 12.31%

 

Dover Corporation (DOV) manufactures and sells a range of specialized products and components, and provides related services and consumables.

Stock Price Dividend Yield 1 year appreciation
$55.52 $1.40 2.1% 11.32%

 

C R Bard Inc. There are currently 51 S&P dividend aristocrats.

Stock Price Dividend Yield 1 year appreciation
$103.70 $0.80 0.8% 20.1%

 

List of Dividend Aristocrats

There are currently 51 S&P dividend aristocrats.

Constituent Name Constituent Symbol Yrs Dividend Increases
3M Co MMM 53
AFLAC Inc AFL 29
Abbott Laboratories ABT 39
Air Products & Chemicals Inc APD 29
Archer-Daniels-Midland Co ADM 36
AT&T T 27
Automatic Data Processing ADP 37
Bard, C.R. Inc BCR 40
Becton, Dickinson & Co BDX 40
Bemis Co Inc BMS 28
Brown-Forman Corp B BF/B 28
Chubb Corp CB 46
Cincinnati Financial Corp CINF 51
Cintas Corp CTAS 29
Colgate-Palmolive Co. CL 48
Clorox Co CLX 34
Coca-Cola Co KO 49
Consolidated Edison Inc ED 37
Dover Corp DOV 56
Ecolab Inc ECL 19
Emerson Electric Co EMR 55
Exxon Mobil Corp XOM 29
Family Dollar Stores Inc FDO 35
Franklin Resources BEN 30
Genuine Parts Co. GPC 55
Grainger, W.W. Inc GWW 40
Hormel Foods Corp HRL 46
HCP Inc HCP 26
Illinois Tool Works ITW 48
Johnson & Johnson JNJ 49
Kimberly-Clark KMB 39
Leggett & Platt LEG 40
Lowe’s Cos Inc LOW 49
McCormick & Co MKC 26
McDonald’s Corp MCD 35
McGraw-Hill Cos Inc MHP 38
Medtronic Inc. MDT 34
PPG Industries Inc PPG 40
PepsiCo Inc PEP 39
Pitney Bowes Inc PBI 29
Procter & Gamble PG 55
Sherwin-Williams Co SHW 33
Sigma-Aldrich Corp SIAL 35
Stanley Black & Decker SWK 44
Sysco Corp SYY 42
Target Corp TGT 44
T. Rowe Price Group TROW 24
VF Corp VFC 39
Wal-Mart Stores WMT 37
Walgreen Co WAG 36

 

Related: Is a Stock Repurchase Better than a Dividend?

The S&P High Yield Dividend Aristocrats Index had been comprised of the 50 highest dividend yielding constituents of the stocks of the S&P Composite 1500 Index that have increased dividends every year for at least 25 consecutive years. These funds have both capital appreciation and dividend income characteristics, as opposed to funds that are pure yield, or pure capital oriented.

The top five funds are the:

SPDR S&P Dividend ETF (SDY)

iShares 1000Value Index Fund (IWD)

Vanguard Dividend Appreciation ETF (VIG)

DIAMONDS Trust, Series 1(DIA)

iShares Dow Jones Select Dividend Index Fund (DVY)