The Dividend Aristocrats Index comprises just 50 businesses that have paid increasing dividends for 25 or more consecutive years. Being a Dividend Aristocrat matters.

The 10-year annual average return of the index averages 7.2%, compared with 4.7% for the S&P 500, according to the S&P Dividend Aristocrats Fact Sheet.

The Dividend Aristocrats Index has outperformed the S&P 500 by a wide margin over the past decade.



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Amazingly, the Dividend Aristocrats Index has outperformed with less price volatility, with its 10-year price standard deviation at 14%, compared with 15.2% for the S&P 500.

Companies are rarely added to the Dividend Aristocrats Index because it is an unusual occurrence for a business to achieve 25-plus years of dividend increases.

General Dynamics (GD) - Get Report will be eligible to join the illustrious Dividend Aristocrats Index next month when it hits its 25th consecutive dividend increase.

The company is also a Top 10 stock using the 8 Rules of Dividend Investing.

General Dynamics was founded in 1952. The company is the fourth-largest publicly traded defense corporation based on its $42 billion market capitalization.

The U.S. military is by far the company's largest customer. The U.S. government accounts for more than 60% of General Dynamic's business.

Having a large portion of revenue come from just one customer is typically risky, but when that customer is the strongest institution in the world, it is less so. Risk is even further reduced when one considers the longevity and scale of the business between the U.S. military and General Dynamics.

A company must have a strong competitive advantage to pay increasing dividends for 24 -- soon to be 25 -- consecutive years. General Dynamics' close relationship with the U.S. government forms part of its strong competitive advantage.

The other part of the company's competitive advantage is its excellent manufacturing and research and development. General Dynamics receives funds from the U.S. government for R&D but also spends about $300 million a year in excess of this on R&D.

The company's competitive advantage has led to earnings-per-share growth of 8.9% a year over the past decade. Its growth has been driven by a mix of revenue increases, margin improvements and share repurchases.

General Dynamics will likely continue compounding earnings per share somewhere between 7% and 10% a year.

This growth, combined with the company's, 2.2% dividend yield gives investors expected total returns of between 9% and 12% a year.

The company's management is very shareholder friendly. Its team distributes the bulk of earnings to shareholders as either dividends or share repurchases.

This shows that the company's management is interested in building value for shareholders.

General Dynamics' growth prospects, consistency, competitive advantage and shareholder-friendly management make it a solid investment choice. Moreover, the company is likely trading at fair value or better.

The company has a price-to-earnings ratio of just 14.9, compared with 22.2 for the S&P 500. General Dynamics is a high-quality company with solid total return potential, yet it trades at a steep discount to the average S&P 500 company's P/E ratio.

Dividend investors will likely have this stock on their radar when it joins the Dividend Aristocrats Index. Don't wait, as the stock is a high-quality business company at fair or better prices today.

General Dynamics is a compelling choice for investors looking for exposure to the defense industry.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.