The 4 “Dividend Aristocrats” of the ASX

There are only four companies on the ASX that have managed to grow their dividends every year, for the past 14 years.

These companies have returned a consistent stream of income back to shareholders through volatile periods like the pandemic and the global rate hike cycle. 

In this wire, we'll explore the concept of a dividend aristocrat and spotlight the companies striving to earn this distinguished title on the ASX.

What is a ‘Dividend Aristocrat’

In the US, a "dividend aristocrat" is defined as a company that has increased its dividend annually for 25 years or more. Currently, over 60 such companies exist within the S&P 500.

The ASX lacks any official dividend aristocrats under this definition. The absence is understandable, given that the Australian market is relatively younger and many of its longstanding companies operate in cyclical sectors like banking and resources, making consistent dividend growth challenging.

The longest winning streak currently on the ASX is held by Washington H Soul Pattinson (ASX: SOL), which is on track to deliver 24 consecutive years of ordinary dividend growth.

Soul Patts is the closest investment vehicle that Australia has to Warren Buffett's Berkshire Hathaway. The company offers investors exposure to a range of investments across equities, private equity, credit and more. 

Three other companies have demonstrated impressive consistency, with at least 14 consecutive years of nominal dividend increases:

• APA Group (ASX: APA) – An energy infrastructure business
• AUB Group (ASX: AUB) – An insurance broker and underwriting network operating across 450 locations in Australia and New Zealand
• Charter Hall Group (ASX: CHC) – One of Australia's leading fully integrated property investment and funds management group

Consistent dividend growth

Since FY10, the four companies have shown the following average year-on-year dividend growth rates (comparing the full-year ordinary dividends paid in FY10 to those in FY24):

• Charter Hall 9.7% (from 12.5 cps to 45.1 cps)
• AUB Group 9.0% (from 20.3 cps to 67 cps)
• Washington H Soul Pattinson 6.3% (from 40 cps to 87 cps)
• APA Group 4.25% (from 31.4 cps to 56 cps)

Note: Washing H Soul Pattison reports its FY24 results on September 26 for the period ending 31 July 2024. The above data refers to its FY10-FY23 dividends

Share price performance

Interestingly, the two stocks boasting the highest average dividend growth rates have also delivered the strongest share price returns over the past decade. 

This correlation is logical, as consistent long-term dividend growth typically requires robust underlying earnings growth to support it. 

Charter Hall has delivered a compound annual growth rate (CAGR) of 11.6% in operating earnings per share over the past decade (FY14-24).

Charter Hall's drawdown

Charter Hall, along with the broader real estate sector, has shown vulnerability to rising interest rates despite stable earnings growth. This sensitivity was evident during the global rate hiking cycle, which caused Charter Hall's share price to plummet around 60% between January 2022 and October 2023.

The stock eventually bottomed in late 2023 amid encouraging inflation data and growing rate cut expectations. Since October 2023, the stock has soared approximately 75%.

Research from Morgan Stanley showed that Charter Hall's "PE multiple has a -0.77 correlation vs. Australian 10-year bond yields ... this means that as bond yields decline, the multiples of these stocks generally re-rate upwards."

APA's gone full circle

It's August 2014 and you've just bought some APA shares at around $7.30 apiece.

Fast forward to August 2024 and you'd be sitting around breakeven (but at least you've harvested around 514 cents in dividends).

To summarise its challenges: APA is facing numerous cost challenges as it invests to catch up on 10 years of under-investments. The $9 billion market cap company sits on a net debt position of $12.2 billion (up from $10.7 billion in FY23).

The first ASX dividend aristocrat

Soul Patts stands on the cusp of achieving "Dividend Aristocrat" status. Since 2000, the company has increased its ordinary dividends at a CAGR of 9.6%. This robust dividend growth is supported by a diverse investment portfolio, which, as of January 31, 2024, includes:

• Strategic investments ($5.9bn): Significant, long-term investments in largely uncorrelated listed companies. Notable holdings include Brickworks, Tuas and New Hope. 
• Large caps ($2.4bn): Actively managed portfolio of Australian listed equities.
• Private equity ($1.4bn): Long-term investments in unlisted equities with a focus on agriculture and electrification/energy transition.
• Emerging companies ($990m): Exposure to fast-growing companies often benefiting from structural changes and global trends.
• Credit ($696m): Actively managed portfolio of largely senior secured loans for the financials and consumer sectors.