Even 'Fallen Dividend Aristocrats' Outperform The Market

When you are presented with evidence that challenges one of your core investment thesis, you have to take a hard look at the new facts. One of the key strengths of the Seeking Alpha community is the broad range of differing viewpoints presented. Recently, a contributor authored "These 26 Dividend Aristocrats Won't Let You Sleep Well at Night", which suggested that there is survivorship bias inherent in investing in Dividend Aristocrats.
I have demonstrated the long-run alpha achieved by the Dividend Aristocrats in many articles on Seeking Alpha. Buying these companies that have increased dividends for twenty-five consecutive years or more has generated higher risk-adjusted returns versus the broad market gauge over the last quarter-century. For this reason, I included the Dividend Aristocrats as one of my "5 Ways to Beat the Market". A depiction of the total return performance of the Dividend Aristocrats relative to the S&P 500 (NYSEARCA: SPY) is pictured below:

(Source: Standard & Poor's; Bloomberg)
The aforementioned article demonstrated that 26 of the 59 companies on the Dividend Aristocrats in 2007 subsequently failed to meet the index's inclusion rules after dividend cuts, dividend freezes, and M&A. The Dividend Aristocrat Index above includes the performance of constituents until the company no longer meets the index inclusion criteria, including the need to maintain increasing dividends. Just as the return history of... Read more