Interest rates are still at low levels, even with recent increases. That is likely to remain the case for the future as central bankers around the world are committed to maintaining a low interest environment to stimulate economic growth from The Great Recession. Assembling a portfolio of "Dividend Aristocrat" stocks can produce a much higher return than that received from checking accounts or certificates-of-deposit, which can be less than 1%.
A "Dividend Aristocrat" is a stock that has increased it dividend, a payment to those owning the shares, for at least 25 consecutive years. The dividend received from a stock is a significant component of the total return. According to legendary investor John Bogle, founder of the Vanguard mutual fund family, in his book "Enough," it has provided more than 40% of the historic total return for equities.
Paying a dividend is a tremendous show of strength for a publicly traded company.
It not only demonstrates that business is strong enough that there is plenty of cash to send out some each quarter to the shareholders, it evinces respect for the rights of all who own the stock. The board of directors, when declaring the dividend, is showing in the only meaningful way that it is wants to reward loyal shareholders with a check. Obviously, when the dividend grows annually, as with Dividend Aristocrat stocks, it makes all of these factors even more powerful.
Many Dividends Aristocrats are well known in the marketplace.
These include Coca-Cola (NYSE: KO), McDonald's (NYSE: MCD), and Wal-Mart (NYSE: WMT). It is very comforting to know that what is spent on a daily basis by consumers around the world goes to enrich the company for which a shareholder is part-owner. Even more reassuring is that legendary investors such as Warren Buffett own millions of shares of Dividend Aristocrat stocks (Coca-Cola, with a 2.89% dividend yield, is Buffett's biggest holding).
By owning shares of Dividend Aristocrat stocks, an investor puts the most powerful force of the universe on their side: that of time. Studies have proven that the best way to profit from owning assets is from investing for the long term. Dividend Aristocrat stocks make this even more rewarding by increasing the dividend income that the shareholders receive each year.