Advisors might expect that companies with long histories of dividend increases would offer clients only minuscule payment raises. In some cases, that’s true. But not always.

The most recent dividend increase at paint-maker Sherwin-Williams was a robust 25.4%. And Sherwin-Williams has given its shareholders 36 years in a row of higher dividends.

Overall, the 50 stocks in the S&P 500 Dividend Aristocrats index — to qualify, companies must have at least 25 years of annual dividend increases — averaged an 8.1% payment gain at the most recent boost. For each company, the difference was measured in the indicated dividend (what investors would expect to receive over the next four quarters with no changes) before and after the increase.

Sherwin-Williams was one of 11 companies in the index that posted double-digit percentage gains in dividends. Admittedly, 16 companies managed to improve shareholder payments by less than 5%.


But only one failed to post an increase higher than the 1% inflation rate over the 12 months. The laggard was steel producer Nucor Corp., which increased its dividend by a mere 0.7%. To be fair, Nucor has had 42 consecutive years of increased dividends and provided extra dividends from 2005 through the third quarter of 2008, when the steel business was stronger.

Companies just starting to pay dividends usually show the largest jumps in payments. In large part, that’s because they start by paying out a fairly small percentage of earnings. Consider the case of Microchip Technology, a maker of microcontrollers and other specialized semiconductors.

The company paid its first dividend of $0.02 in December 2002. Because the company’s year ends in March, it paid $0.04 in a fiscal year when it earned $0.64, a payout ratio of only 6.3%. The payment remained at the $0.02 quarterly rate until May 2003, when it was raised to $0.24. In November of that year, MCHP began to step up its dividend every quarter. By the February 2006 payment, it was up 850% from the initial 2002 dividend.

At the end of 2008, with the financial crisis in full bloom, Microchip stopped raising its dividend every quarter. The company has increased its dividend annually and resumed quarterly increases at the end of 2009. In recent years, Microchip has raised its quarterly dividend by a fraction of a cent each period. With the latest increase, its indicated dividend is $1.436, an increase of 0.14% over the previous rate.

That makes the average payment increase of S&P 500 Dividend Aristocrats all the more remarkable.

Yet, as advisors regularly explain to their clients, dividends are only part of the investment story. The cumulative total return of the S&P 500 Dividend Aristocrats from December 31, 1999, through March 24, 2016, is 361% vs. the S&P 500’s return of 89%, according to data from S&P Dow Jones Indices, which owns both benchmarks.

While the past can’t predict the future, that is an impressive performance. And the Aristocrats have a lower standard deviation (13.9%) than the S&P 500 (15.3%). Unlike the S&P 500, the S&P 500 Dividend Aristocrats is an equal-weighted index, which reduces the potential overweighting of bubble stocks. It also gives greater prominence to smaller issues, which frequently outperform their larger brethren. The downside is that it is more expensive to regularly rebalance an equal-weighted index.

You can track this dividend-oriented index via the ProShares S&P 500 Dividend Aristocrats ETF.

The ETF was launched on October 9, 2013, so performance numbers are limited. In the year ended March 31, it returned 6.42% and cost 0.35%. In contrast, the Vanguard S&P 500 ETF returned 1.76% with a mere 0.05% expense ratio.

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