The Dividend Aristocrats for Retirement


By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

The Dividend Aristocrats are U.S. stocks (members of the S&P 500) that have increased their dividends for at least 25 years or more. That index methodology will find incredible quality and it also offers a large cap bias. Large cap (capitalization) means that the companies are at the higher end with respect to what it would take to buy the company outright. It is the number of shares multiplied by the share price. The Aristocrat methodology has outperformed the market, and with lesser volatility. That might make it a solid approach for the U.S. stock component for a retiree, or for one who seeks better risk-adjusted returns. We’re looking at the Dividend Aristocrats for retirement, on The Sunday Reads.

Now certainly, when we bring up the subject of dividend investing, that will split many investors and stock market watchers into two separate camps. Many feel that it is a superior form of investing. At the other end of the entrenched opinion – dividends have absolutely nothing to do with investment success. They will argue that it is a zero sum game, the company is simply giving you money by way of a dividend and that reduces the value of the company by an equal amount.

What do those dividends find?

If we want to think of dividends or dividend investing as a factor, the argument can be that dividends find certain kinds of companies. Of course dividend investing will almost always find profitability (unless they’re faking it). Most dividends seek dividend growth and that can find companies with a longer history of increasing profits and increasing free cash flow. And when you stretch that dividend growth history to 10, 15, 20, 25 or 50 years that can find higher quality companies with incredible track records, sustainable moats and durable business models. While certainly not foolproof, the approach can lessen the chance of failure within a stock or large basket of stocks.

This post from S&P Global, the importance of stable dividend income offers this quote and fact …

Across all of the time horizons measured, the S&P 500 Dividend Aristocrats exhibited higher returns with lower volatility compared with the S&P 500, resulting in higher Sharpe ratios.

Better risk adjusted returns is appealing for many. But it can have even more importance for the retiree, as we have that sequence of returns risk.

Ploutos, Seeking Alpha

On Seeking Alpha, author Ferdis tracks and measures the quality of each Dividend Aristocrat. Here’s the most recent Dividend Aristocrats ranked by quality scores.

Readers will know that for our U.S. stock portfolio the approach has found many U.S. Dividend Aristocrats, so I like to check in on the Ferdis reports to see where our Aristocrats stand on the Ferdis scale. I continue to find that our Aristocrats are in the top echelons of quality. In fact the only stock at the bottom of the scale is our only loser – Walgreens.

The Dividend Achievers skims

From that U.S. portfolio link you’ll see that I skimmed 15 of the largest cap Achievers in early 2015. That index methodology insists on at least 10 years of dividend growth, and the Dividend Achievers (Appreciation) index applies proprietary financial health screens. Our stock performance suggests that the index skimming exercise found enough growth and truly excelled at that quality ‘thing’. Within the original mix of stocks were several Dividend Aristocrats.

I took a look at our U.S. portfolio returns and then offered this comment on the Ferdis post …

From my 2015 start date I beat the Aristocrats Index (ETF NOBL) by about 2.7% annual with much better risk adjusted returns. So ya, quality works. In the COVID correction I had about 35% less draw down. Dale’s Achievers were down by less than 21% in the correction.

Solid returns with lesser volatility and less draw down in major corrections was exactly the rationale for embracing the Achievers and Aristocrats for retirement.

And then when you add in a few solid quality U.S (no brainer) picks with decent growth prospects.

Our total U.S. returns are even more exaggerated as the 3 picks beat the Appreciation fund by 7.5% annual. They are AAPL, BLK and BRK.B (as a defensive stock market correction hedge – that’s an underperformer for the period).

That growth kicker has contributed greatly to the wonderful performance. As always past performance does not guarantee future returns.

Here’s the summary in chart form.

And setting the table for retirement.

Equal weight by stocks or ETF

An additional ‘bonus’ is that you can choose to equal weight the stocks. And that’s exactly what also happens within the Dividend Aristocrat Index. Here’s the current sector mix. The index is equal-weighted, that can contribute to a value tilt as well (finding greater current earnings accompanied by generous growth prospects).

It can sidestep sector overvaluation as well as it did during the dot com crash of the early 2000s.

For U.S. accounts you can look to that NOBL ETF.

There is no Canadian dollar version for the U.S. Aristocrats. But you will find the U.S. Dividend Appreciation index offerings at Vanguard Canada. There is VGG that does not hedge (currency) and there is the currency-hedged VGH.

Given the weaker Canadian Dollar vs the U.S. Dollar over the last several years, you’ll find that the non-hedged version has outperformed the hedged by about 3.5% annual.

If you like the Aristocrat strategy (after much additional research of course, ha), you might consider buying enough of the individual stocks (in a U.S. dollar account). Consult that Ferdis article for greater quality considerations. You might include a few companies from the Appreciation fund as well.

Aristocrats and Achievers plus the Canadian BTSX

A nice combination to consider is the Canadian higher dividend approach known as the Beat The TSX Portfolio. You’ll add in wonderful income and a history of outperformance. I think that’s a nice tag team and that’s what we use for our approach.

That would be a good ‘chunk’ of the approach in the ETF portfolio for retirement. The Vanguard Canadian High Dividend ETF offers covers off that BTSX ‘idea’.

Of course there are other risks and assets to consider. You’ll employ fixed income. You might also consider greater inflation protection, knowing that stocks don’t work for inflation. On that subject, have a read of the new balanced portfolio.

Keep in mind that core couch potato investing can work wonders for retirement and accumulation. You might build a simple but effective core ETF balanced portfolio and chip in some added inflation protection.

Canadian Aristocrats

You might also look to the Canadian Dividend Aristocrats that also has a long term history of beating the market. On Cashflows & Portfolios you’ll find the Canadian Dividend Aristocrats in their recent look at Canadian Dividend ETFs.

Here’s a very interesting post from FiPhysician on behavioural investing vs modern portfolio theory of MPT. He is not a fan of dividend investing. But once again, that is a great post. I think it actually explains why dividend investing can work in many places.

Dale Roberts is the Chief Disruptor at A former ad guy and investment advisor, Dale now helps Canadians say goodbye to paying some of the highest investment fees in the world. This blog originally appeared on Dale’s site on Sept. 24, 2021 and is republished on the Hub with his permission.

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