The Dividend Achievers Index is a list of 274 stocks that have consecutively increased their dividend payments for at least 10 years. To be included in the Dividend Achievers Index, a stock must be a member of the NASDAQ US Benchmark Index and meet certain minimum liquidity requirements. More about Dividend Achievers.
Summary - Dividend achievers are companies who have increased their dividend payout for 10 consecutive years while meeting market liquidity requirements. Dividend achievers fall into a special category of companies that make issuing, and growing, dividend payments a priority. In turn, investors and analysts typically regard these companies as being strong and financially stable.
When companies issue their quarterly earnings reports, there are metrics like earnings per share (EPS) and revenues that can be manipulated. And even numbers on a company’s balance sheet can be misleading because it is only as accurate as the company’s income statement – which at times can be misleading.
On the other hand, dividend payouts represent extra cash that a company has left over after they have met their short-term liabilities. This means that dividends are distributions of profit. When a company has extra cash they can either put it back into the business, use it for growth initiatives, or return it to shareholders either through dividends or share buybacks. By issuing a dividend and particularly when they show a commitment to increasing that dividend these companies are expressing confidence that they not only have cash now, but they will continue to have extra cash in the quarters and years ahead. This is an important point about dividends. Once a company starts to issue them, they will usually pay a steep price for discontinuing them or even to stop raising them. Therefore companies will work hard to maintain their dividend growth rate so that shareholders feel that they are being rewarded for their investment.
Investing in dividend achievers is a popular choice for income investors. That's because the dividend while being lower than some of the highest yield dividend stocks, is extremely stable and therefore less sensitive to a change in interest rates. It’s also possible for investors to invest in dividend achievers through mutual funds, index funds and exchange-traded funds (ETFs).
For investors that enjoy the income that comes from dividend-paying stocks, the ones that are perceived to be the safest are the ones that have just been increased. This is why dividend investors should know about dividend achievers. While you can always find an example of a company that had a streak of raising dividends right before they cut it, it’s an axiom among investors that companies that make raising their dividend a priority are generally among the healthiest in the industry and therefore investors can have confidence in their future prospects.
In this article, we'll break down a specific category of common stocks known as the dividend achievers. We'll provide a definition of dividend achievers, explain why they're important, where investors can find them, why they should be considered as a part of every investor's portfolio, how dividend achievers are different from dividend aristocrats and the risks involved in investing in these dividend-paying stocks.
What is a dividend achiever?
A dividend achiever is a company whose common stock has posted an increased dividend payout at least once a year for 10 consecutive years. Although dividend achievers are not restricted by market capitalization, a dividend achiever must meet certain market liquidity requirements.
Why are dividend achievers important?
A company’s willingness to issue dividends is an indication of financial health and stability. The commitment to increase that dividend every year encourages long-term investors who can expect an increase in shareholder value as well as an increase in share price. Dividends unlike other metrics (like free cash flow and even revenue) are difficult to manipulate. Issuing a dividend means the company has enough cash left over after they have covered their short-term liabilities. More importantly, for investors, it signifies a belief that the company will continue to have excess cash into the future. This highlights another benefit of dividend stocks in general – once a company begins to issue a dividend, they will generally make maintaining that dividend a priority. Dividend achievers take that commitment to the next level by increasing the payout to shareholders.
Where can investors find a list of dividend achievers?
Many financial websites post lists of dividend achievers. These sites are updated regularly as companies move on or off. When deciding what dividend achievers might be right for their portfolio, many investors look at different sectors. The majority of dividend achievers stocks are weighted in the Industrials (28%), Financials (19%), Consumer Staples (11%), and Materials (11%). Companies within these sectors are characterized by consistent demand for their products and services and businesses that are less affected by rapid changes. Both of these characteristics give these companies the right environment to issue and grow their dividend.
When investors look for dividend achievers, technology stocks are among the least represented. This is because these stocks are sought after for the growth opportunities they provide. In order to increase their stock price value, these companies will frequently look to re-invest their excess cash rather than returning capital to shareholders.
Why invest in dividend achievers?
Dividend stocks can provide diversification for any portfolio. But just like there are different equity and bond categories, not all dividend stocks are the same. The income generated from investing in dividend achievers is like a port in any storm. When interest rates are low, dividends provide a nice injection of cash to a portfolio. On the other hand, when interest rates begin to rise, investments in both bonds and equities can come under pressure – and that includes dividend stocks. However, the dividend stocks that are the most affected in tough times are frequently the ones that entice investors with the promise of an enhanced yield. That’s why dividend achievers can be a great addition.
Dividend achievers typically are regarded as quality stocks. And while quality can mean a lot of things, to investors the quality of dividend achievers comes from consistent and stable earnings. The tradeoff for the security of the dividend often comes with a lower yield. However, investing in a dividend achiever mutual fund or exchange-traded fund (ETF) can help boost return while spreading out the risk.
There are currently approximately 70 U.S.-listed ETFs that invest in dividend stocks. Investors can sort these funds by market cap to emerging markets. Essentially, investors can curate their investment objective to the objective of the fund.
Another reason to invest in dividend achievers is the opportunity to have their income gains achieved taxed at a lower rate that is similar to the long-term capital gains rate. If investors hold the stock for a specified length of time prior to the ex-dividend date, their dividends will be considered to be qualified dividends which means that instead of the gains being taxed as ordinary income, they will be taxed at a lower rate.
Do dividend achievers outperform the market?
Dividend stocks are not regarded as high growth stocks. One reason for this is that dividend stocks, when compared to the broader market, are less volatile. When a stock is less volatile it moves either in close correlation to the market or in less correlation. Less volatility offers investors the benefit of capital preservation and better risk-adjusted returns. And dividend achievers are typically regarded as high-quality companies. This makes their earnings more predictable and their stock prices more stable. While stable stock prices mean that dividend achiever stocks may miss out on some of the high growth of more aggressive stocks, but their stock prices tend to decline less during down markets.
Although many investors will construct a dividend portfolio that consists of a number of individual dividend growth stocks, many investors are taking advantage of the many index funds and exchange-traded funds (ETFs) that allow investors to collect dividends while investing in a basket of dividend-issuing stocks.
Two of the more popular examples are the $36.4 billion Vanguard Dividend Appreciation Index Fund (VDAIX) which tracks the Nasdaq U.S. Dividend Achievers Select Index. And the Invesco PowerShares Dividend Achievers ETF (NASDAQ: PTM). This ETF has outperformed the Russell 3000 Value Index since its inception.
Source: Invesco (as of 6/30/2018)
Before investors consider investing in an index fund or ETF, they should look at the fund's performance record. Many fund tracking websites will provide access to how the fund is performing year-to-date as well as provide data on the fund's three-year to five-year annual average returns. Many investors use the S&P 500 as a useful benchmark to gauge a fund's performance.
Another consideration is cost. Investors should consider the expense ratio, which is a percentage of the fund’s average net assets. A fund can either be actively or passively managed. Passively managed funds have become very popular in recent years. However, some investors will find that an actively managed fund may be able to provide a return because the advice they receive from investment management advisors compensates them for a higher expense ratio.
How are dividend achievers different from dividend aristocrats?
Dividend aristocrats have the distinction of increasing dividends for over 25 years. The easy way to think about the two groups is that every dividend aristocrat is a dividend achiever, but not every dividend achiever has risen to the level of dividend aristocrat. Either way, these companies are regarded as some of the darlings of income-oriented investors.
Risks of investing in dividend achievers
As much as dividend achievers are generally considered to be stable stocks, they are not without risk. To begin with, like any stock, past performance is not a guarantee of future results. With that in mind, some companies that comprise the index are have benefited from good fortune rather than sound financial management. There is also a risk that some companies may pay a dividend out of debt or by issuing new shares. But a dividend is supposed to come from a company’s profit. If it comes from debt, then a company is returning capital to investors, but calling it a dividend.
The final word on dividend achievers
Income-oriented investors will look for dividend-paying companies. And among these companies, Dividend Achievers hold a special place. Dividend achievers have a consecutive 10-year streak of not only issuing but growing, their quarterly dividend. This meaningful commitment to building shareholder value as compared to other companies makes them an attractive investment option.
Investing in dividend achievers can provide meaningful diversification because the yield generated by these stocks, while frequently not being the highest yield, will often be a rock-solid benefit that investors can count on quarter after quarter. And to help maximize return and minimize risk, there are mutual funds and ETFs that exclusively invest in the stock of dividend achievers.
Being a dividend achiever, however, is no guarantee that the dividend payment will remain safe. To be on the dividend achiever list, the company simply needs to have issued growing dividends for 10 years and meet market liquidity requirements. Investors need to continue to do their due diligence to see if the company can ensure the safety and quality of their dividend even during tough times. In the aftermath of the financial crisis and subsequent recession of 2007-2008, many companies cut their dividend.