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Dividend Aristocrats


Why you need to know which members of the S&P 500 index have raised dividends every year for at least 25 years.

Editor's note: The following is an excerpt from Get Rich With Dividends.

When I first got into the financial industry, I was an assistant on a trading desk, eventually working my way up to trader. Before I knew how to analyze a company by reading balance sheets and income statements, I learned about stock charts.

Two key concepts in reading stock charts are:

1. The trend is your friend.
2. A trend in motion stays in motion.

Essentially, what these two concepts mean is that a stock will continue moving in the same direction until it doesn't anymore. How's that for insight?

But when you look at a chart of a stock that is heading higher, although there are some minor corrections, it often moves on a diagonal line (called a trendline) upward. Stocks traveling along one of these trendlines usually continue until something changes their direction. The cause of the change in direction could be a bad earnings report, weak economic data, or a large institution selling its shares. Frequently, once the trend is broken, the stock will reverse.

Investors who trade using chart data look for opportunities to buy shares of stocks that are trending higher. I bring this up because the same can be said about companies that raise their dividends.

Typically, a company with an established trend of increasing its dividends will raise them again next year and the year after that and the year after that -- unless it becomes impossible to do so. Management knows that investors have come to expect the dividend boost every year and that any change in that policy will send them running for the exits.

I call these companies Perpetual Dividend Raisers, and they come in more than one variety.

Dividend Aristocrats

The concept of a Dividend Aristocrat is simple. A Dividend Aristocrat is a company that is a member of the S&P 500 index and has raised its dividend every year for at least 25 years.

These are primarily blue chip companies with long histories of growing earnings and dividends.

If your investing goals are to impress your friends at cocktail parties with your knowledge of brand-new technology and to brag about the millions of dollars you will make off of the companies behind those technologies, then Dividend Aristocrats aren't for you.

Most people don't find a company like Genuine Parts (GPC), which makes auto replacement parts, to be terribly exciting. I'm not even sure Genuine Parts' CEO is all that excited about replacement parts.

But the company makes a ton of money-$565 million in 2011-and it has increased its dividend every year since 1956. Think about that for a minute: Every year. Since 1956.

Through the Cuban Missile Crisis, the Kennedy assassinations, Vietnam, Watergate, gas lines, the Cold War, the rise of Japan, the rise of China, 9/11, the dot-com collapse, the housing bust, and the Great Recession-through all of these difficult, and in some cases tragic, events, when pundits were saying the sky was falling, at times when the economy really did stink, Genuine Parts went about its business, making and selling auto parts and returning more money to shareholders than it did the year before.

The last time Genuine Parts did not increase its dividend, President Eisenhower was in the White House and Elvis Presley made his television debut on The Louisiana Hayride on KSLA-TV in Shreveport, Louisiana.

That was a long time ago. And that is pretty darn exciting.
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