Dividend-paying stocks have long been a favorite of income-seeking investors. Often referred to as a relative ‘safe haven’, they are an attractive option for investors seeking passive income.
Indeed, dividends have played a significant role in the returns investors have received over the past few decades. Going back to 1960, 85% of the cumulative total return of the S&P 500 Index can be attributed to reinvested dividends and the power of compounding.
What Is a Dividend Aristocrat?
Of course, no dividends are guaranteed. Any company can reduce or even completely suspend dividend payouts. For example, during the financial crisis of 2008–2009 and, more recently, during the crisis triggered by the pandemic in 2020, many European banks were forced to suspend or reduce dividend payments due to a combination of regulatory, economic, and financial pressures.
And this is where ‘dividend aristocrats’ come in. With a history of delivering market-beating returns for investors and proving to be generally steady, safe holdings, this group of stocks have increased their dividends each year, for at least 25 years.
The Hunt for Europe’s Aristocrats
The term ‘dividend aristocrats’ was originally applied to US stocks. Among them, as laid out in this recent Morningstar article, there are currently more than 60 dividend aristocrats in the S&P 500 index.
However, Europe does have its own select group of stocks that have been paying consistent dividends for the past 25 years. Of the 1,272 companies that make up the Morningstar Europe Index, 1,176 have paid dividends at some point in their history.
What is needed though to make it on to the ‘dividend aristocrat’ list is a consistent, 25 year record of paying dividends. Only 226 companies in the Europe index have paid their shareholders a dividend every year for the past 25 years. Even fewer have increased their payouts year after year.
As Dan Lefkovitz, strategist for Morningstar Indexes, says: “Companies with broad competitive advantages have been less likely to cut their dividends than companies with more limited competitive advantages.”
Only five companies have increased their dividends consistently over the last 25 years. Among them are the two large Swiss pharmaceutical companies Roche Holding (ROG) and Novartis (NOVN), Ireland’s Kerry Group (KRZ), one of the largest food technology companies in the world, Spectris (SXS), which supplies measuring instruments for research and industrial applications and real estate company Primary Health Properties (PHP), both of which come from the UK.
Of the five European dividend aristocrats, only two have a wide economic moat, according to Morningstar metrics. They are Roche and Novartis. These two companies, from the same sector, have not only increased their dividends every year for the last 25 years, but also enjoy a wide economic moat and a high dividend yield.
Roche is a 5-star stock, trading below its fair value estimate, while Novartis is a 2-star stock.
Both companies have seen spectacular dividend growth over the past 25 years. In the case of Roche, its dividend has grown at 9.5% per year over this 25 year period, although it has slowed in both the past five years (2.1% growth) and 10 years (2.0%). The company pays its annual dividend in March, and this year, 2025, it has also increased its dividend to CHF 9.30, up from CHF 9.10 last year.
As for Novartis, annual dividend growth has been 5.8% over the last 25 years, 3.1% over the last 10 years, and 5.7% a year over the past five years. It also pays its annual dividend in March, and this year it has increased it to CHF 3.30 from CHF 3.20 last year.
Stocks Compared: Roche versus Novartis
Although both major Swiss pharmaceutical companies have high and similar dividend yields, 3.9% for Novartis and 3.8% for Roche. Roche’s performance has been more modest over the past three years.
However, when you look at Morningstar’s fair value estimate for the two pharmaceutical companies, Roche is significantly undervalued, trading at a discount of 30%. Novartis, meanwhile, trades at a premium of 10%.
Key Morningstar Metrics for Roche
Analyst: Karen Andersen, CFA
- Morningstar Rating: ★★★★★
- Sector: Healthcare
- Economic Moat: Wide
- Price/Fair Value: 0.69
- Forward Dividend Yield: 3.77%
On Roche’s dividend, Karen Andersen, equity director at Morningstar, says: “We see Roche’s current level of dividend payment (roughly CHF 8 billion annually) ais appropriate, as it maximizes returns to shareholders but still leaves some free cash flow remaining to repay debt as it comes due, or support smaller collaborations or acquisitions.”
Key Morningstar Metrics for Novartis
Analyst: Jay Lee
- Morningstar Rating: ★★
- Sector: Healthcare
- Economic Moat: Wide
- Price/Fair Value: 1.1
- Forward Dividend Yield: 3.85%
Regarding Novartis’ dividend policy, Jay Lee, a health sector analyst at Morningstar, says: “We view Novartis’ dividends and share repurchases as about right. Novartis has generally targeted close to a 50% payout in dividends as a percentage of normalized earnings, which seems about right for a more mature industry. Further, Novartis has shown a willingness to buy back shares at generally neutral time periods.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
