How To Become Your Own
Dividend Aristocrat

Dividend Aristocrat stocks are those dividend paying companies that have increased their payouts each year for at least 25 consecutive years.

Another related designation is the Dividend Achiever where the distribution has increased each year for at least 10 consecutive years.

Both terms are trademarked names and are available as an index for individual investors in ETF form.

Past performance is no guarantee of future results, as the fine print always says. But there is still something to be said for a proven track record.

The Power of Dividend Growth Investing

The power of dividend growth investing is the power of compounded returns that take the form of an ever-increasing income stream.

If you purchase a stock that pays a 3% yield, for example, but that dividend increases 10% each year (i.e. a 10% dividend growth rate), it's just a matter of time before you begin to experience the dramatic results.

As the dividend grows so does your effective yield, or yield on cost.

Effective Yield or Yield on Cost are different names for the same thing. They essentially calculate your dividend yield not on a stock's current yield (for new investments) but based on your original purchase price.

If your original yield was 3% when you first purchased your dividend paying stock, but over time the dividend payout has doubled, then your effective yield, or yield on cost, is now 6%.

Based on your original investment:

In Year 5, your effective yield is 4.39%
In Year 10, your effective yield is 7.07%
In Year 15, your effective yield is 11.39%
In Year 20, your effective yield is 18.35%
In Year 25, your effective yield is 29.55%

Dividend growth investing is relatively simple - invest in superior dividend paying stocks that consistently increase their distributions and then just sit back and wait.

Improving the Dividend Paying Process

As much as I like a sure thing, I find it challenging as an investor to be both self-directed and passive. I may have patience, but I also like to tinker.

I believe that in most situations, whether we're talking about investing or some other area of life, that there are adjustments or other factors under our control that can be made to improve, or optimize, a process.

I believe in trying to take the "good" and turning it into the "great."

So what factors would improve the results in the example above? The two most obvious factors are:

Starting with a higher initial yield
Having an investment that produces a higher dividend growth rate.

These factors may largely be out of the control of most dividend growth investors, but if you're willing to learn some simple but powerful option trading strategies, I believe you can creatively stack the deck in your favor on both counts.

An Options-Enhanced Alternative:
Become Your Own Dividend Aristocrat

Leveraged Investing, the options-enhanced approach I personally use with my own investments and the approach I advocate throughout this site, is essentially about one thing: perpetually lowering the cost basis on your long term investments.

I detail multiple cost-basis lowering strategies in The Essential Leveraged Investing Guide, but the desired outcome for each individual strategy is the same - paying less for your stocks and squeezing more out of them year after year after year.

And here is a powerful fact: whether you increase the dividend payout by 10% or decrease your cost basis by 10% (and reinvest that "rebate" into more shares at the original yield), the results are identical:

Example A - A $10,000 investment with an initial yield of 3% produces $300 in annual income. Assuming there's a 10% dividend increase the following year, your original investment would then produce $330 in annual income.

Example B - A $10,000 investment with an initial yield of 3% produces the same $300 in annual income. But assume you were able to safely generate $1000 in option income in that first year, thereby lowering your original cost basis to $9000. If you then reinvested that $1000 into additional shares at the same original 3% yield, even with no increase in the company's dividend, your dividend income would still be identical to the income in Example A ($300 from your initial investment + $30 from the reinvested $1,000).

Leveraged Investing is not a substitute for long term investing - but it is a potent way to enhance the performance of your long term holdings.

It may not save you from bad investments. But, when combined with savy and smart long term dividend growth investing, it will accelerate your dividend growth rate, or to provide the equivalent of dividend growth when your investments fail to produce it on their own.

And the ability to turn any quality dividend paying stock into a Dividend Aristocrat stock is a powerful tool.

As the Latin proverb states: "When there is no wind, row." And the corresponding Leveraged Investing proverb: "When thre is no dividend growth, become your own Dividend Aristocrat."

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