Dividend Aristocrats or Dividend Kings: Which Is Best for You?

September 11, 2024 at 09:57 AM EDT

Photo of a red king chess piece surrounded by fallen black chess pieces. The goal of many dividend investors is to create a stable portfolio of companies that provide consistent distributions for the foreseeable future. And when it comes to paying dividends consistently, dividend aristocrats and dividend kings represent the best of the best. These companies have long histories of not only paying out dividends but also increasing them over time, making them ideal for long-term income investors.

However, there are a few key differences between aristocrats and kings that go beyond their stability. Read on to learn more about dividend kings and dividend aristocrats, what makes them great choices for dividend investing, and how to choose which is right for you.

What Is a Dividend Aristocrat?

The term “dividend aristocrat” describes a group of large-cap stocks that pay an annual dividend and have raised that dividend each year for at least 25 years. To qualify as a dividend aristocrat, stocks must meet all of the following criteria:

Be included in the S&P 500 Index
Have consecutively paid and increased its dividend for the last 25+ years
Maintain a total market capitalization of at least $3 billion
Maintain a total of at least $5 million in average daily trading volume for three months prior to being added

Meeting this criterion ensures that only major stocks paying consistent dividends make it onto the list. Some examples of major companies on the current dividend aristocrat list include:

Sherwin-Williams: Paint and coating manufacturer Sherwin-Williams (NYSE: SHW) has increased its dividend for 47 consecutive years. In the last three years, it realized a dividend growth of 10.64%.
McDonald’s: Fast food powerhouse McDonald’s (NYSE: MCD) has a total dividend yield of 2.32% and has realized a dividend increase of more than 7% in the last three years alone.
IB: One of the world’s largest computer and machine manufacturers, International Business Machines (IBM) (NYSE: IBM), has raised its dividend for the past 29 consecutive years.

Why Invest in a Dividend Aristocrat?

While they have shorter histories of dividend payments compared to dividend kings, there are many benefits that come with investing in dividend aristocrats, including:

Reliable and Growing Income: Since they have increased dividends for 25+ consecutive years, dividend aristocrats provide a consistent and growing income stream.
Financial Stability: Companies that qualify as dividend aristocrats have strong financial fundamentals and are typically large, established firms with the ability to navigate various market cycles.
Diversification: Dividend aristocrats come from a wide range of sectors, allowing investors to build a diversified portfolio of high-quality, dividend-paying stocks.
Lower Volatility: Dividend aristocrats tend to have more stable stock prices due to their solid business models and strong balance sheets, making them less volatile than other stocks.
Inflation Protection: Regular dividend increases help protect investors’ purchasing power, as the rising income stream can offset the effects of inflation over time.

What Is a Dividend King?

To qualify as a dividend king, a company must have increased its dividend annually for at least 50 consecutive years. There are currently 29 stocks that qualify as dividend kings, including names like:

Cincinnati Financial: Property and casualty insurance company Cincinnati Financial (NASDAQ: CINF) has increased its dividend for 63 consecutive years.
3M: Multinational conglomerate 3M (NYSE: MMM) is known for its wide range of products, including adhesives and consumer goods. The company has a dividend increase streak of 65 consecutive years.
California Water Service Group: California Water Service Group (NYSE: CWT) is a water utility company that has raised its dividend for 55 consecutive years.

While dividend aristocrats must be included in the S&P 500, kings do not — but because it takes a massive market leader to pay and increase dividends for half a century, most kings also qualify as aristocrats. Examples include:

Genuine Parts: Genuine Parts (NYSE: GPC), an automotive and industrial parts distributor, has raised its dividend for 67 consecutive years.
Colgate-Palmolive: Consumer products company Colgate-Palmolive (NYSE: CL) specializes in oral care, personal care, and home care products and has a 60-year streak of increasing dividends.
Target: Target (NYSE: TGT) offers consumers a wide range of consumer goods and investors a history of raising dividends for 52 consecutive years.
Coca-Cola: Global beverage leader Coca-Cola (NYSE: KO)has increased its dividend for 61 consecutive years.
Procter & Gamble: Procter & Gamble (PG) is a multinational consumer goods company with a dividend increase streak of 66 consecutive years.
American States Water: American States Water (NYSE: AWR) boasts the longest-running history of dividend increases. This residential water and electric services company has raised its dividend for the last 71 consecutive years.

But not all kings are aristocrats. For example, water utility company California Water Service Group (NYSE: CWT) is a dividend king that is not part of the S&P 500, so it is not a dividend aristocrat.

Why Invest in a Dividend King?

When it comes to creating a portfolio to support long-lasting dividend income, dividend kings are simply unbeatable. With a proven track record of financial management, these companies are more likely to continue paying dividends in the future as well. Some benefits of investing in dividend king stocks include:

Exceptional Dividend Growth: Dividend kings have increased their dividends for 50+ consecutive years, making them some of the most reliable sources of long-term income growth.
Proven Resilience: These companies have demonstrated the ability to thrive through multiple economic cycles, including recessions, market downturns, and periods of inflation.
Long-Term Capital Appreciation: Although dividend kings may not offer rapid stock price growth, their consistent performance and dividend reinvestment provide solid, steady capital appreciation and wealth preservation.
Low-Risk Profile: Companies that have sustained dividend growth for 50+ years tend to be financially strong, making them lower-risk investments compared to other stocks.
Defensive Characteristics: Many dividend kings operate in defensive industries such as consumer goods, utilities, and healthcare, which are less sensitive to economic fluctuations and provide added stability during market volatility.

Dividend Kings and Dividend Aristocrats: Key Differences

In addition to their differing criteria for inclusion, the differences between dividend aristocrats and dividend kings include:

Size and Market Capitalization: Because dividend aristocrats must meet specific S&P 500 market capitalization and liquidity thresholds, they must be large-cap companies. Dividend kings, on the other hand, are not subject to those same rules and can, therefore, include smaller or mid-cap companies.
Number of Companies: Due to the stricter 50-year requirement, there are fewer dividend kings, with around 40 companies. In contrast, there are typically 60 to 65 companies that qualify as dividend aristocrats, reflecting the broader 25-year requirement.
Types of Companies: The dividend aristocrats list includes a wide array of industries, including cyclical companies with demand that varies throughout the year. Dividend kings tend to focus on more consistently in-demand industries, providing less opportunity for growth but more stability.
Risk and Stability: Given their longer dividend growth streaks, dividend kings are often seen as more conservative, lower-risk investments, as they’ve maintained dividend increases through numerous market conditions. While also considered stable and reliable, dividend aristocrats may offer a wider range of risk profiles, given the shorter streak and inclusion of a broader set of industries.
Liquidity: The S&P 500 includes some of the most frequently traded stocks on American stock exchanges. This higher daily trading volume may help provide additional liquidity to aristocrats over kings.

How to Choose Between Dividend Aristocrats and Kings?

When selecting between dividend kings and aristocrats, consider your timeline and ideal risk tolerance. If your primary goal for investing is long-term income generation, dividend kings will usually be a better option. These companies’ 50-year payment histories demonstrate a commitment to reliable payouts, even during periods of economic stress. This makes them ideal for preserving capital and ensuring a consistent income stream.

If you’re looking to balance income generation with the potential for capital appreciation, consider dividend aristocrats. These companies may not have as established dividend histories, but they are all included in the S&P 500, indicating dominance in their markets. Dividend aristocrats may see more growth in share price over time when compared to kings, operating in industries that ebb and flow with economic conditions.

Introducing a blend of dividend aristocrats and kings into your portfolio can help provide a balance of growth potential and stable payments. MarketBeat’s dividend calculator can help you determine the ideal investments for your portfolio depending on your desired monthly distributions and current capital.

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