The term dividend aristocrat commonly refers to a US company that is a member of the S&P 500 index and has increased its dividend for at least twenty-five consecutive years in a row.
Examples are enterprises such as The Coca-Cola Company, PepsiCo, Procter & Gamble, Johnson & Johnson.
Companies having the ability to raise their shareholder payouts for decades in a row belong to the top of the top. They have a dominant market position with a durable economic moat which is the basis for consistent growth of their top and bottom line. These companies are shareholder-friendly and often have a good management team.
(It’s no coincidence, in my view, that you cannot find banks in that group of dividend aristocrats, but that’s a topic of its own which I might address in a separate article).
So, when you want to build a bulletproof stock portfolio with the potential to churn out an ever-growing cash flow stream, ready to reinvest, long term oriented conservative investors rightly focus on dividend aristocrats, which are by definition US top companies, the strongest players which have the ability to increase their dividends for a long time period. The Coca-Cola Company, Altria, and 3M are not only dividend aristocrats, but even dividend kings which means that these businesses have been hiking their shareholder distributions for more than fifty years!
So, let’s look at Europe. To answer the initial question of this article:
YES. There are European businesses that have paid out increased dividends for at least twenty-five years.
Companies like Johnson Matthey, L’Oreal, Sanofi-Aventis, SSE, Fresenius, EssilorLuxottica, Nestlé, Roche, Novartis, Fresenius etc.
It’s worth noting that European companies usually take a different approach when it comes to their dividend policy. While in general, they tend to be very generous to return excess capital to shareholders, a consistent increase of dividends seems not to be the primary focus.
In Europe, dividend payouts tend to fluctuate more often than compared to their US peers. European dividend policies are more “business-driven” so to say; a certain percentage of the FCF (e.g. 30 – 40 %) is paid out which means that when the business is doing well, this results in a dividend increase and when the company is under pressure (e.g. due to an economic downturn), it is not uncommon to see a lower dividend payout. So, the challenges a company faces are to some extent passed through to the shareholders. There is clearly a different shareholder policy culture in the US and Europe. But either way, over the long term, the differences are marginal. Sometimes, it is prudent, to keep dividends steady or even cut them. For instance, in my opinion, US giant ExxonMobil should have cut its payout a long time ago to ride the oil price recovery from a position of strength and deliver its balance sheet. Being a dividend aristocrat in Europe can lead to unprudent decisions.
So, again back to Europe. You can find a nice group of European businesses that hiked their shareholder payouts over 25 in a row, but there are not all too many.
Three of them belong to the strongest businesses in Europe and they are my favorite defensive companies: I am writing/speaking about food and drink giant Nestlé and the two pharma companies Roche and Novartis. The cumulated market cap of these three Swiss companies represents more than 40 % of the Swiss Performance Index, which is kind of the equivalent of the S&P Index in the US. Some people lament that more than 50 % of the S&P is represented by the popular FANGMAN group (Facebook, Amazon, Apple, Netflix, Google (Alphabet), Microsoft, Nvididia). But the Swiss Performance Index is even more concentrated, on just three names.
But these three Swiss Dividend Aristocrats kind of play in a league on their own, they are the “European defensive mega players”. Nestlé has been increasing its dividends since 1959, Novartis has been hiking shareholder distributions since 1996, and Roche‘s payout has been climbing for over 35 years.
You can find a snapshot of Novartis and Roche in the article ARK Investment’s Swiss pharma holdings.
Please, check also out the article on Nestlé and its amazing stake in L’Oreal.
You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.