Dividend Achievers and Aristocrats

The Dividend Achievers and the Aristocrats are some of the long term dividend investor's best friends.

Both categories are trademarked terms and form the basis of several indexes and at least one ETF.

Dividend Aristocrats go one big step farther. These are dividend paying companies, also of a certain size, that have increased their annual dividend payouts for at least 25 years.

Dividend stock investors have long known the power of the dividend growth model and growing dividends. If you invest in dividend paying companies that regularly increase their payouts, your effective yield (the annual payout divided by your original investment) keeps getting bigger and bigger.

That's how even seemingly mundane investments can eventually transform into high dividend stocks.

Investing in Dividend Achievers and Aristocrats

The most obvious way to invest in the Achievers index is through and ETF called PFM (PowerShares Dividend Achievers Portfolio). And the last time I checked again (Sept 2010), it currently offers a yield of about 1.5%.

That's not exactly high yield territory, but if the stocks in this index all continue to increase their distributions every year, the effective yield will become respectable in no time at all.

But I have serious reservations about this type of mechanical investing. As we've seen in the latter half of this decade, a lot of dividend paying companies (and non-paying ones, too) engineered their success more through credit expansion than true growth.

And after all, a basket of 300+ stocks is more than a mere basket. It's an entire cargo container of over diversification. Yes, you'll probably gain exposure to some terrific Achiever companies quickly on their way to become Aristocrats, but you're also going to gain exposure to the ailing and deteriorating companies soon to be kicked out of the index.

I don't invest in order to "gain exposure." I invest in order to become part owner of superior companies. I prefer a concentrated portfolio assembled with extreme due diligence and where I limit my investments to only the very, very best businesses I can identify.

So while I would caution the long term self-directed investor against purchasing shares of this ETF or in any other way mirroring these indexes, I will say that these categories of stocks are still a very good resource.

A list of the Achievers and the Aristocrats are a very good starting place for researching and investigating future investment ideas.

As a Leveraged Investor, I look for the best businesses I can find. Period. Maybe those businesses have paid increasing dividends for 25 years or maybe they've paid them for 10 years. But, then again, maybe they've never paid a dividend.

In the end, you have to determine your own criteria for investing excellence. I believe that a well-assembled portfolio of quality investments will handily beat an index over the long haul every time.