What Are the Benefits of Investing in Dividend Aristocrat Stocks?

Each investor has their own unique set of goals that are based on their own personality and risk tolerance preferences. What works for one person might seem a little too risky for another. That’s why it’s so important to do your research and put the work in to create an investment strategy that works best for you. There are certain investors out there that tend to only focus on dividend-paying stocks. They are all about buying into dividend yield and using the income to reinvest over time. The truth is that finding some of the best dividend stocks isn’t difficult if you know where to look.

Some of the most popular dividend-paying stocks are known as dividend aristocrats. Aristocrats are basically people that are known for being the best and noblest in all of the land, so associating that word with stocks has significant power. Dividend aristocrats are stocks on the S&P 500 that have had 25+ consecutive years of increasing their dividends. You might consider the dividend aristocrats as best in show in terms of the dividend growth stocks out there. Below, we are going to walk you through some of the main benefits of investing in these dividend aristocrats so that you can gain a better understanding of why they might be a good addition to your investment portfolio.

1. High Probability of Increased Dividend Payouts

One of the big pluses associated with investing in a dividend aristocrat stock is that there is a very good chance that they will continue to increase their dividend payouts. This is great for people that are looking to use their dividend income for retirement or to reinvest into their stock portfolio. 25 straight years of a company increasing its dividends is the kind of track record that investors like to rely on. Sure, there is always the chance that a company will cut its dividend, but with dividend aristocrat stocks, the chances of that are very low.

2. Stable Businesses

A lot of times, investors can get hung up on the idea that a company might go out of business and leave them with pennies left from their initial investment. This is another unique advantage of dividend aristocrat stocks. Dividend aristocrats are companies that have been able to increase their dividend payouts regularly due to their continued success and stability over the years. These companies are able to maintain high dividend yields thanks to solid business lines and recession-proof products. They are companies that have paid out dividends over the years even during the most stressful market downturns and periods of volatility. Dividend aristocrats are often industry leaders and have solid competitive advantages that allow them to continuously reward their investors. If you are looking for a “safe” investment, dividend aristocrats can provide you with the steady dividend increases and the reliable business strategy that you are looking for.

3. Downside Risk Isn’t as Big

Every investor should think about the potential downside of an investment before making any final decisions. The truth is that the stock market is always susceptible to political events, bad news, and economic factors that can be impossible to predict. If you are someone that is investing in dividend aristocrats for retirement income or stability, you need to keep in mind that the stock price of these companies can always go down. The benefit here is that when a dividend aristocrat stock is decreasing in price, the dividend yield actually goes up. That means your dividend payouts increase as the stock price goes down, which helps to limit the downside of an investment. Keep this in mind as you are evaluating your investment options for the future.

4. Compound Interest

A lot of people don’t fully understand the concept of compound interest. With dividend aristocrats, you have the opportunity to build wealth over time by taking advantage of this key financial concept. By reinvesting the increasing dividend payouts that you are receiving each year into more dividend-paying stocks, you can build a portfolio that is constantly working for you. A lot of dividend investors love the fact that they can use the compound interest from their dividend aristocrat stocks in order to build wealth over time.

As you can tell, dividend aristocrat stocks can be a very intriguing option for investors that are seeking nice dividends over time from stable businesses. Remember that you should always do your research before you invest in a stock and make sure you are alright with any associated risks before buying.