What Does a Dividend Aristocrat Look Like?

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As a result of the criteria on the prior card, Dividend Aristocrats tend to be large, more mature companies that consider paying dividends to shareholders as a top priority. Because Dividend Aristocrats need to have paid and increased their dividends each year for the last two and a half decades, many have been through multiple economic downturns and expansions. And if companies have been able to maintain their dividend and even increase it during recessions or other difficult economic events, it highlights the stability of the firm’s business, its ability to sustain growth, its financial strength and its management’s commitment to paying a dividend.

One measure that investors can look at to determine if dividends may grow over time is the payout ratio, which measures the amount of earnings being paid out to produce a dividend. If the payout ratio is low, this indicates the company is reinvesting in the business and has the ability to increase the dividend payment in the future if management decides that is the best interest of shareholders.

Dividend Payout Ratio = Total Dividends / Net Income x 100

Investors can also use per share data like dividend and earnings per share in order to calculate the payout ratio. For example, if a company generated $10 in annual earnings per share and paid out $2.50 in dividends throughout the year, the dividend payout ratio would be 25%.

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