Investors like dividend aristocrats. And why not?
Dividend aristocrats are companies that have increased their dividends every year for at least 25 years. At present, more than 60 of these companies are included in the S&P 500 index.
But there's a hitch, as Morningstar investment specialist Susan Dziubinski writes in a blog post this week. Some investors assume that dividend aristocrats are the best long-term dividend stocks to buy, but that's not always the case.
Although dividend aristocrats are mature companies with sufficient earnings to continue to increase their dividends and are run by management teams that prioritize dividends in the capital structure, they aren't immune to dividend cuts.
Dziubinski points to Walgreens Boots Alliance, a former dividend aristocrat that cut its dividend nearly in half in 2024.
Investors can sidestep the dividend aristocrat trap and avoid the ones that are most likely to cut their dividends, according to Morningstar Indexes strategist Dan Lefkovitz.
"Companies with wide economic moats have been less likely to cut dividends than companies with narrow moats," Lefkovitz says. "No-moat businesses are most likely to cut."
Morningstar analysts identified the best dividend aristocrats to buy now by screening for dividend stocks that are included in the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), and for those with Morningstar economic moat ratings of narrow or wide that are trading below the firm's fair value estimates.
See the accompanying gallery for the five dividend aristocrats that made the list. Year-to-date returns are as of June 3.
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