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 PriceDividendYield1 year appreciation
$53.87$1.021.90%18.68%

 

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

Stock PriceDividendYield1 year appreciation
$28.00$1.164.1%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 PriceDividendYield1 year appreciation
$149.00$3.482.3%12.31%

 

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

Stock PriceDividendYield1 year appreciation
$55.52$1.402.1%11.32%

 

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

Stock PriceDividendYield1 year appreciation
$103.70$0.800.8%20.1%

 

List of Dividend Aristocrats

There are currently 51 S&P dividend aristocrats.

Constituent NameConstituent SymbolYrs Dividend Increases
3M CoMMM53
AFLAC IncAFL29
Abbott LaboratoriesABT39
Air Products & Chemicals IncAPD29
Archer-Daniels-Midland CoADM36
AT&TT27
Automatic Data ProcessingADP37
Bard, C.R. IncBCR40
Becton, Dickinson & CoBDX40
Bemis Co IncBMS28
Brown-Forman Corp BBF/B28
Chubb CorpCB46
Cincinnati Financial CorpCINF51
Cintas CorpCTAS29
Colgate-Palmolive Co.CL48
Clorox CoCLX34
Coca-Cola CoKO49
Consolidated Edison IncED37
Dover CorpDOV56
Ecolab IncECL19
Emerson Electric CoEMR55
Exxon Mobil CorpXOM29
Family Dollar Stores IncFDO35
Franklin ResourcesBEN30
Genuine Parts Co.GPC55
Grainger, W.W. IncGWW40
Hormel Foods CorpHRL46
HCP IncHCP26
Illinois Tool WorksITW48
Johnson & JohnsonJNJ49
Kimberly-ClarkKMB39
Leggett & PlattLEG40
Lowe’s Cos IncLOW49
McCormick & CoMKC26
McDonald’s CorpMCD35
McGraw-Hill Cos IncMHP38
Medtronic Inc.MDT34
PPG Industries IncPPG40
PepsiCo IncPEP39
Pitney Bowes IncPBI29
Procter & GamblePG55
Sherwin-Williams CoSHW33
Sigma-Aldrich CorpSIAL35
Stanley Black & DeckerSWK44
Sysco CorpSYY42
Target CorpTGT44
T. Rowe Price GroupTROW24
VF CorpVFC39
Wal-Mart StoresWMT37
Walgreen CoWAG36

 

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)