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If you’re interested in investing in companies which consistently grow their dividends, you’ve probably come across the Dividend Aristocrats – a list of companies in the S&P 500 which have increased their dividends for at least 25 years.

Currently, there are 66 companies on the Dividend Aristocrats list.

But what if I told you there are 140 companies which meet the criteria of 25 years of dividend growth?

You see, the Dividend Aristocrats index is quite restrictive – companies have to meet certain market capitalization and trading volumes to even be considered, and in the end it is up to an S&P committee to decide what gets added to the list. This means that there are many more potentially attractive dividend growth companies just waiting to be discovered.

What’s the best way to find these companies? I recommend starting with the Dividend Champions list.

What is the Dividend Champions List?

The Dividend Champions list is a monthly publication tracking companies with a history of consistently increasing their dividends. To be included on the list, a company’s dividend payout must be increasing for at least the past 5 years. The Dividend Champions List was started by David Fish in 2007. After David passed away in 2018, I began maintaining the list.

How to use the Dividend Champions List

The Dividend Champions list is provided as an Excel spreadsheet featuring a wealth of information on each company. While the focus is on dividend growth, basic fundamental and technical data is also included. This tool allows you to sort, filter, and write formulas to your heart’s content to identify investment ideas worthy of further research!

Why use the Dividend Champions List?

Stock screeners are a dime a dozen. Even though the dividend growth streak is not a common screenable metric, there are a few screeners that offer it. So why use the Dividend Champions list?

In short, the human element and common sense.

Most stock screeners simply apply algorithms to databases provided by companies like Factset or S&P. Guess what? Databases have errors.

Automated stock screeners just assume everything in the database is correct and spit out an answer. Though I use many automated tools to help me compile the Dividend Champions list, at the end of the day, I try to verify the data and correct anything that looks fishy.

For example, many screeners will report International Business Machines (IBM) as having a dividend growth streak of 21 years. The Dividend Champions list records it at 25 years. Why the discrepancy? Many online databases contain an improper split adjustment of a dividend in the second quarter of 1999, as shown:

Computer algorithms will take one look at that and log it as a dividend cut. But if you pull up IBM’s official SEC filings, you’ll find that the dividend was properly paid on post-split shares.

So, do you believe an online database, or an official SEC filing?

I’m going with the latter.

Errors like these and other special situations are why it’s a good idea to have a human checking results and applying a bit of common sense. That’s not to say that the Dividend Champions list is completely error-free; I still find mistakes from time to time. But I work hard on a daily basis to ensure that the vast amount of information provided by the Dividend Champions list is more complete and accurate than many of the screeners and databases out there.

Do dividend growth streaks really matter?

Who cares how long a company has been growing their dividend?

You would, if the company you own cuts their dividend at the first sign of trouble.
Companies with long dividend growth streaks tend to have strong business models and be well managed.

Take 2020 for instance. In a year derailed by a pandemic, hundreds of companies cut their dividends to conserve cash. Of the 866 companies on the Dividend Champions list at the beginning of 2020, 119 ended up reducing or completely eliminating their dividend by the end of the year. However, if you look more closely at the dividend growth streak of these companies, an interesting picture emerges:

Dividend cuts were concentrated among companies with less than 12 years of dividend growth.

Want to guess what happened 12 years prior to 2020?

Another financial crisis.

Many of the companies that cut their dividends during the Great Recession did the very same thing during the COVID-19 recession.

Of the companies tracked by the Dividend Champions list, over 20% of those with dividend growth streaks less than 12 years cut their dividends in 2020. In contrast, less than 5% of those with dividend growth streaks over 12 years ended up reducing their payouts.

While I can’t guarantee that a company with a long dividend growth history won’t cut its dividend, chances are pretty good that when tough times roll around, such companies will continue not only paying, but growing their dividends.

In other words, the information provided in the Dividend Champions List can lead to results that result in a more reliable passive income stream and more peaceful sleep at night.

Once you’ve had a chance to use the Dividend Champions list, I think you’ll realize just how powerful and valuable it is. And do you know what the best part is? The Dividend Champions List is, and will always be, a free resource for those interested in dividend growth investing!

Justin Law