Dividend Achievers

Regular dividend payments help investors maintain a hedge against inflation

Dividend achievers are a group of companies that have increased their dividend payout for 10 consecutive years. Dividend achievers fall into a special category of companies that make issuing, and growing, dividend payments a priority. In turn, investors and analysts typically regard these companies as being strong and financially stable. As of June 2022, there are approximately 347 companies that are dividend achievers.

In addition to providing at least 10 consecutive years of dividend increases, dividend aristocrats must also meet market liquidity requirements. In this case, they must have a minimum three-month average trading volume of at least $1 million.

In this article we’ll go into more detail about dividend achievers. In addition to explaining why dividend aristocrats are important, we’ll also show investors where they can find them, why investors should consider them as a part of their portfolio, how dividend achievers are different from dividend aristocrats and the risks involved in investing in these dividend paying stocks.

Why Dividend Achievers Are Savvy Choices in Any Market Environment

Buying stock gives investors an ownership stake in those companies. When a company issues a dividend, it is giving investors a percentage of its profits to investors.

A company’s willingness to issue dividends is an indication of financial health and stability. The commitment to increase that dividend every year encourages long-term investors who can expect an increase in shareholder value as well as an increase in share price.

Dividends unlike other metrics (like free cash flow and even revenue) are difficult to manipulate. Issuing a dividend means the company has enough cash left over after they have covered their short-term liabilities.

More importantly for investors, a dividend can signify that the company will continue to have excess cash in the future. This highlights another benefit of dividend stocks in general – once a company begins to issue a dividend, they will generally make maintaining that dividend a priority. Dividend achievers take that commitment to the next level by increasing the payout to shareholders.

How Dividends Help Increase an Investor's Total Return

The total return on investment includes interest, capital gains, dividends and other distributions that an investment generates over a period of time. High-growth companies typically don’t issue dividends. This means the total return of that investment is almost exclusively limited to capital gains.

That’s good news when the market is going up, because these stocks can outperform the market. However when the market is falling, the total return on these stocks is significantly lower than the broader market.

That’s why dividend stocks are a good choice. They offer investors a dividend in addition to the opportunity for capital gains. In bull markets, these stocks typically trade in line with the market in terms of capital gains, but the dividends can push the total return higher. But these stocks really shine in down markets. In this case, the stocks tend to perform “less badly” than growth stocks. And, the regular dividend payment can help trim any losses even more if investors reinvest their dividends.

Where Can Investors Find a List of Dividend Achievers?

Many financial websites post lists of dividend achievers. These sites change regularly as companies move on or off. When deciding what dividend achievers might be right for their portfolio, many investors look at different sectors.

The majority of dividend achievers stocks are weighted in the Industrials (28%), Financials (19%), Consumer Staples (11%), and Materials (11%). Companies within these sectors generate consistent demand for their products and services. This means their businesses are able to withstand rapid changes. Both of these characteristics give these companies the right environment to issue and grow their dividend.

When investors look for dividend achievers, technology stocks are among the least represented. This is because investors look to technology stocks because of the growth opportunities they provide. In order to increase their stock price value, these companies will frequently look to re-invest their excess cash rather than returning capital to shareholders.

Why Invest in Dividend Achievers?

Dividend achievers are typically regarded as quality stocks. And while quality can mean a lot of things, to investors the quality of dividend achievers comes from consistent and stable earnings. The tradeoff for the security of the dividend often comes with a lower yield. However, investing in a dividend achiever mutual fund or exchange-traded fund (ETF) can help boost return while spreading out the risk.

There are currently approximately 70 U.S.-listed ETFs that invest in dividend stocks. Investors can sort these funds by market cap to emerging markets. Essentially, investors can curate their investment objective to the objective of the fund.

Another reason to invest in dividend achievers is the opportunity to have their income gains achieved taxed at a lower rate that is similar to the long-term capital gains rate. If investors hold the stock for a specified length of time prior to the ex-dividend date, their dividends will be considered to be qualified dividends which means that instead of the gains being taxed as ordinary income, they will be taxed at a lower rate.

Do Dividend Achievers Outperform the Market?

Dividend stocks are not regarded as high growth stocks. One reason for this is that dividend stocks, when compared to the broader market, are less volatile. When a stock is less volatile it moves either in close correlation to the market or in less correlation. Less volatility offers investors the benefit of capital preservation and better risk-adjusted returns. And dividend achievers are typically regarded as high-quality companies. This makes their earnings more predictable and their stock prices more stable. While stable stock prices mean that dividend achiever stocks may miss out on some of the high growth of more aggressive stocks, but their stock prices tend to decline less during down markets.

Although many investors will construct a dividend portfolio that consists of a number of individual dividend growth stocks, many investors are taking advantage of the many index funds and exchange-traded funds (ETFs) that allow investors to collect dividends while investing in a basket of dividend-issuing stocks.

Two of the more popular examples are the $36.4 billion Vanguard Dividend Appreciation Index Fund (VDAIX) which tracks the Nasdaq U.S. Dividend Achievers Select Index. And the Invesco PowerShares Dividend Achievers ETF (NASDAQ: PFM). This ETF has outperformed the Russell 3000 Value Index since its inception.

Source: Invesco (as of 6/30/2018)

Before investors consider investing in any index fund or ETF, they should look at the fund’s performance record. Many fund tracking websites will provide access to how the fund is performing year-to-date as well as provide data on the fund’s three-year to five-year annual average returns. Many investors use the S&P 500 as a useful benchmark to gauge a fund’s performance.

Another consideration is cost. Investors should consider the expense ratio, which is a percentage of the fund’s average net assets. A fund can either be actively or passively managed. Passively managed funds have become very popular in recent years. However, some investors will find that an actively managed fund may be able to provide a return because the advice they receive from investment management advisors compensates them for a higher expense ratio.

How are Dividend Achievers Different From Dividend Aristocrats?

Dividend aristocrats have the distinction of increasing dividends for over 25 years. The easy way to think about the two groups is that every dividend aristocrat is a dividend achiever, but not every dividend achiever has risen to the level of dividend aristocrat. Either way, these companies are regarded as some of the darlings of income-oriented investors.

What Are the Risks of Investing in Dividend Achievers?

As much as investors generally consider dividend achievers to be stable stocks, they are not without risk. To begin with, like any stock, past performance is not a guarantee of future results.

With that in mind, some companies that comprise the index are benefit from good fortune rather than sound financial management. There is also a risk that some companies may pay a dividend out of debt or by issuing new shares. But a dividend is supposed to come from a company’s profit. If it comes from debt, then a company is returning capital to investors, but calling it a dividend.

Some Final Thoughts on Dividend Achievers

Income-oriented investors will look for dividend-paying companies. And among these companies, dividend achievers hold a special place. Dividend achievers have a consecutive 10-year streak of not only issuing but growing, their quarterly dividend. This meaningful commitment to building shareholder value as compared to other companies makes them an attractive investment option.

Investing in dividend achievers can provide meaningful diversification because the yield generated by these stocks, while frequently not being the highest yield, will often be a rock solid benefit that investors can count on quarter after quarter. And to help maximize return and minimize risk, there are mutual funds and ETFs that exclusively invest in the stock of dividend achievers.

Being a dividend achiever, however, is no guarantee that the dividend payment will remain safe. To be on the dividend achiever list, the company simply needs to have issued growing dividends for 10 years and meet market liquidity requirements. Investors need to continue to do their due diligence to see if the company can ensure the safety and quality of their dividend even during tough times. In the aftermath of the financial crisis and subsequent recession of 2007-2008, many companies cut their dividend.