The S&P Dividend Aristocrats is an annual list published by Standard & Poor’s showing companies that have consistently increased their dividends for at least 25 years. The Dividend Aristocrats is the list of the ultimate dividend payers and is used by dividend investors to monitor their investments. According to Bloomberg the Dividend Aristocrats inclusion criteria may need to be changed with the economic turmoil.
We are in one of the deepest recessions since the great depression and this has caused tremendous pressure on companies’ earnings and not surprisingly we have seen record levels of dividend cuts. According to Bloomberg the S&P Dividend Aristocrats list will fall below 40 companies for the first time in 17 years, when the list is updated in December. Some suggest reducing the threshold for the Dividend Aristocrats to 20 years, doing so will bring the list back over 40, but would doing so hurt the prestige of the Dividend Aristocrats?
There are two sides to the argument; some say that leaving the inclusion criteria as it is will bring out the elite dividend payers, while others argue that we have “unusual” times and the Dividend Aristocrats should be adjusted to it.
I am still unsure if a change is needed. Although I use the Dividend Aristocrats to gauge my dividend payers I don’t necessarily sell an investment because they have fallen of the list. For example when Pfizer cut dividends I did not immediately sell my position, I still believed in Pfizer as a company. Some companies have decided not to raise their dividends this year and preserve cash to deal with the economical turmoil, should they be punished? Isn’t that appropriate management?
On the other side the purpose of the Dividend Aristocrats is to list the elite dividend payers, so lowering the threshold will reduce the prestige of the list.
What are your thoughts, should S&P adjust for “unusual” times or should the list only contain the best of the best?