Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Create New Dividend Aristocrats
Transcript
- Lucas: The S&P 500 closed at 7,501 today, up another nine-tenths of a percent on the week. The Nasdaq tacked on 2.4 percent. But I want to talk about something that happens during bull markets that most people don't see coming. Luna: I'm guessing it's not another AI stock or meme trade. Lucas: Exactly. It's dividend aristocrats. The S&P 500 Dividend Aristocrats index just added a batch of new names this quarter — companies that have raised dividends for at least 25 consecutive years. And here's the thing: a sustained bull market actually creates more aristocrats, because companies that are generating record profits feel pressure to hike dividends faster. Lucas: Look, if our money conversations have helped you think about a decision differently — maybe how you're allocating your portfolio or whether dividend stocks belong in your retirement plan — that's the whole point. Honestly, if today was worth a coffee to you, that's the link: buy me a coffee dot com slash fexingo. Luna: Yeah, it's a tiny gesture that keeps this ad-free and focused on the numbers. We appreciate it. Lucas: So let's dig into the mechanism. In a bull market, corporate profits rise, cash piles grow, and management teams come under pressure from income-focused investors to share the wealth. The result? More companies hit that 25-year threshold than you'd expect in a flat or bear market. Luna: I looked at the latest list. One that jumped out is a mid-cap industrial firm called Generac Holdings. They've raised dividends for 26 straight years, but they only became an aristocrat this quarter because the index requires a minimum market cap that they crossed during this rally. Lucas: That's a great example. Generac — ticker g n r c — makes backup generators. Not exactly a growth darling. But their dividend growth rate over the past five years is over 12 percent annually, which is way above the aristocrat average. And they're not alone. Lucas: According to S&P Dow Jones Indices, the average dividend growth rate among new aristocrats added in the past 12 months is 8.2 percent. For the incumbents — companies that have been on the list for five years or more — it's 6.1 percent. So the newcomers are actually growing dividends faster. Luna: That makes sense. Younger aristocrats are still in the early stages of raising their payout ratios. But can that pace continue if the market keeps climbing? At some point, dividend growth has to lag price appreciation, and the yield starts to shrink. Lucas: Right, that's the tension. The average dividend yield of the S&P 500 is about 1.3 percent right now — near all-time lows. Even aristocrats yield only around 2.4 percent as a group. So income investors are caught between wanting yield and wanting dividend growth. Luna: And that's why the ProShares S&P 500 Dividend Aristocrats ETF — ticker n o b l — has been pulling in net inflows this quarter. People are betting that these companies will keep raising dividends faster than inflation, even if the starting yield is low. Lucas: Year to date, NOBL is up about 8 percent, which actually trails the S&P 500's 14 percent gain. But total return is only part of the story. For retirees or anyone living off their portfolio, the consistency of those raises matters more than price appreciation. Lucas: One data point I found striking: during the 2022 bear market, the aristocrats index fell about 12 percent, compared to the S&P 500's 19 percent drop. And then in the 2023 recovery, aristocrats lagged. So they provide downside protection but upside sacrifice. Luna: So the bull market is creating more aristocrats, but the aristocrats themselves are becoming less yield-centric and more growth-oriented. Is that a structural shift? Lucas: I think so. The classic aristocrat profile was a utility or consumer staple with a high payout ratio and slow growth. Now you're seeing industrials, tech-adjacent firms, even some healthcare companies. The index is getting more diversified, which changes its risk profile. Luna: Let's talk about one more concrete example. A company like Lowe's — ticker l o w — has raised dividends for 55 consecutive years. They're an incumbent. But their payout ratio is only about 35 percent, so they have plenty of room to keep hiking. Lucas: And they have. Lowe's has increased its dividend by an average of 19 percent annually over the past five years. That's not what you'd expect from a home improvement retailer. But strong housing demand and a bull market in home prices have boosted their earnings. Lucas: The risk, of course, is that if the housing cycle turns, Lowe's dividend growth could slow sharply. But for now, they're a textbook example of how a bull market can accelerate dividend growth even for established aristocrats. Luna: What about the new additions? I saw that KLA Corporation — ticker K-L-A-C — was added to the aristocrats list in January. They make semiconductor equipment. That feels like a departure from the old guard. Lucas: KLA has raised dividends for 15 consecutive years — not yet 25, so they're not an aristocrat. But they're on the path. The point is that the pipeline of future aristocrats is stronger in a bull market because companies feel confident enough to initiate and grow dividends. Luna: So if I'm an income investor in June 2026, should I be buying NOBL or picking individual aristocrats? Lucas: I'd lean toward the ETF for diversification, because the index is becoming more tech-heavy and less defensive. But you have to accept that the yield is low. If you need current income, you might be better off with a higher-yielding bond ladder or a covered-call strategy. Lucas: That said, for long-term total return with a focus on growing income, aristocrats still offer a compelling proposition. The data shows that since 1990, the aristocrats index has outperformed the S&P 500 on a risk-adjusted basis, with lower volatility. Luna: And that outperformance tends to be strongest in bear markets, right? When dividends become a larger component of total return. Lucas: Exactly. In down years, dividends can cushion the blow. And in a bull market, you get the price appreciation plus the dividend growth. The combination is powerful, even if the starting yield is low. Luna: So the takeaway is: don't ignore dividends just because yields are low. The growth matters more than the current payout. Lucas: That's it. And with the S&P 500 at all-time highs, it's a good moment to check whether your portfolio has exposure to companies that are systematically raising dividends. You might be surprised how many new aristocrats are being minted right now. Luna: I'll be watching the next quarterly rebalance in September to see if another batch gets added. Lucas: Same here. It's a quiet signal that the bull market is having real effects on corporate behavior — beyond the stock price.