If it’s good to be an aristocrat, then surely it’s even better to be the king.

No, I’m not talking about the fat cats on Wall Street. As an income investor, you’re likely familiar with the S&P 500 Dividend Aristocrats. These are the elite companies that have boosted their payouts every year for at least 25 consecutive years.

Sounds great, right? Well, then let me introduce you to the Dividend Kings. These are companies that have boosted their payouts every year for at least 50 consecutive years. Now, that’s what I’m talking about!

If you’ve ever suffered a dividend cut and the associated collapse in share price, then you’re probably salivating at the prospect of investing in stocks with such royal pedigrees. After all, any company that’s managed to increase its payout through multiple booms and busts clearly understands the sanctity of the dividend.

Unfortunately, it’s not that simple. While a steadily rising dividend over such a long period is a powerful signal of a company’s fundamental strength, it’s not the only thing that matters.

Indeed, we want income and growth. Strong earnings growth drives strong dividend growth, which, in turn, drives strong share-price appreciation. Yep, we want it all.

There’s no question that the Dividend Aristocrats and Dividend Kings have delivered growing incomes to many investors over the long haul. But they don’t always measure up in terms of total return.

At Investing Daily’s Utility Forecaster, there are two Dividend Aristocrats listed among the utilities in our coverage universe:

AT&T Inc. (NYSE: T)
Consolidated Edison Inc. (NYSE: ED)

And we also track five Dividend Kings (note that unlike the Aristocrats, the Kings don’t have to be in the S&P 500 to wear the crown):

American States Water Co. (NYSE: AWR)
California Water Service Group. (NYSE: CWT)
Northwest Natural Gas Co.  (NYSE: NWN)
SJW Group (NYSE: SJW)
Vectren Corp. (NYSE: VVC)

But only one of these seven companies currently merits inclusion in our portfolios at present.

Over the trailing 10-year period, the two Dividend Aristocrats and five Dividend Kings generated total returns of 9.6% annually and 7.6% annually, respectively.

That’s pretty good, especially considering that the S&P 500 returned 6.9% annually over the same period.

But the Top 5 Picks in our Growth and Income Portfolios performed even better. The Income Portfolio’s Top Picks returned 11.9% annually, while the Growth Portfolio’s Top Picks returned 11.4% annually.

These differences in returns may not sound like all that much when expressed in annualized terms, but over the full period the narrowest gulf between the two sets of returns adds up to a significant 44 percentage points.  

To be sure, all four cohorts benefit, to a certain extent, from survivorship bias. But the comparison underscores the possibility of taking a good thing and making it even better.

The Dividend Arrivistes

Most utilities, even those that have yet to become Aristocrats, have offered steady dividend growth for many, many years.

That opens up the possibility of redefining what it means to be royalty. After all, if a company has sustained a dividend with no cuts for decades, while generating steady annual dividend growth for eight to 10 years or even longer, then most income investors would probably consider that a pretty compelling investment.

When that stock also has other appealing fundamental factors, including strong projected earnings and dividend growth, along with manageable debt and payout ratios, then it becomes even more compelling.

And if the stock has all those characteristics and also trades at a reasonable valuation relative to its peers, well then we would argue that’s more than enough to constitute royalty.

In preparation for the next issue of Investing Daily’s Utility Forecaster, we’ll be looking for the select few stocks that fulfill these demanding criteria. At the moment, there may only be one, or there may be several that qualify, but are too expensive right now.

Thankfully, share prices fluctuate, which means if these stocks have everything else going for them, then we’ll eventually have an opportunity to pick them up at a reasonable price.