Advanced finance tip – Aristocrat stocks

As I embark on this post I want to remind everyone that any financial advice you read here is my opinion. You should always do your due diligence when it comes to your personal finance. Talk to as many people as possible, read as much as possible and get educated. On this blog you can find many basic finance tips that are basic and require very little in the way of finance knowledge they are common sense based.

This tip is common sense based to, but it is a more advanced approach to accumulating income. Aristocrat stocks is a term used for companies who pay out dividends, with two very important distinctions.

1. A company is a dividend aristocrat if it increases the dividend it pays to shareholders for at least 25 straight years.
2. A dividend aristocrat must also be a member of the S&P 500, and some investors may add additional screening criteria.

Source data https://www.investopedia.com/terms/d/dividend-aristocrat.asp

The first distinction is the most important, it increases its dividend payouts for at least 25 years straight. These are companies like McDonalds, Exxon, IBM, Walmart, all huge corporations with decades of a track record of sales and growth. These are expensive stocks, they are blue chips, they are some of the most cash flush companies in the world. Some of these companies’ net sales in a year are greater than many countries GDP.

Thus the title “Aristocrat”. So what does this mean for you? As you move into a more comfortable space with your finances you will come to a point where you will want to generate income. Stock growth in of itself isn’t income until you sell the security. Dividends however are payouts you get for just owning the stock. Now why Aristocrat stocks are a “thing” now (they always were, but you see it more now) is due to the fact that interest rates have been so low for decades you cannot earn decent income from banks.

To put it in context, in the 1990’s your range on 6-month Certificate of Deposit was 8.62% – 3.53%. Now that’s a 5% range which is significant. A 6-month CD now? Good luck getting more than .5%. So of course investors have looked elsewhere for securities which gave you a guaranteed return. Believe me if CD rates were 3% or higher we would be discussing that. So we turn to aristocrat stocks. Even during economic down turns, we know places like Walmart, Apple etc. aren’t going to go out of business they are too big.

So investing in single stocks is dangerous, the market could take a down turn and the actual PRICE PER SHARE might go down. In that instance you may actually have a loss of value but you will still get a dividend. Remember Aristocrat stocks are a great means to getting guaranteed income. We used to be able to get this income from CD’s and saving accounts. The downside to this is, many people are in the stock market hence why it is so bloated. Ideally we get back to a reasonable interest rate that enables a good asset mix.

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