Dividend Investing Strategy
Dividend Investing is an approach whereby the investor seeks out and invests in companies which possess a consistent track record of paying and increasing dividends over a prolonged historical period, the firms which have achieved this feat for 25+ consecutive years are commonly referred to as 'Dividend Aristocrats'. Companies which have a consistent track record of maintaining and increasing dividend payments tend to be financially stable and predictable in their earnings, they are also less likely to experience dramatic volatility in share price due to macroeconomic pressures. By buying stock in these companies and reinvesting the dividends to purchase more of the same types of stocks the intelligent investor can greatly compound his capital over time and build up a large passive income stream.
To qualify as a 'Dividend Aristocrat' a company must have paid dividends for over 25 years consecutively, be included in the S&P 500 and fulfil certain criteria pertaining to capitalization and liquidity(Market Capitalization of >$3 Billion and daily trading volume >$3 Million). For a full and current list of dividend aristocrat stocks see here;
Dividend Aristocrats List
There is one problem which the dividend investor will quickly become aware of when appraising the list of dividend aristocrats. Since these companies are so well known publicly and their track records are so dependable they don't often sell at a sufficient discount to intrinsic value for the intelligent investor to consider them worthy of investment. For this reason I recommend dividend investors to also turn their attention to companies known as 'Dividend Champions' and 'Dividend Contenders'.
There are a number of models which can be applied to value a company based upon the dividends it distributes to its shareholders. Below is a summary of these models for your consideration.
Dividend Discount Model (DDM). There are three different variants of this model, the ZeroGrowth Rate DDM, the ConstantGrowth Rate DDM (Gordon Growth Model) and the VariableGrowth Rate DDM (MultiStage Growth Model).
ZeroGrowth Rate DDM
IV = D/r IV = Intrinsic Value D = Annual Dividends r = Required rate of return; (This is the rate of return one should demand to compensate for the risk of owning the stock. This can be calculated as the sum of the longterm compound annualized growth rate (CAGR) of the market which is the riskfree rate one would achieve by simply investing in an index plus the longterm inflation rate. If the company is perceived as possessing above market risk this discount rate can be increased as appropriate. Taking the S&P 500 as an example the longterm (Jan. 1st 1871  Dec. 31st 2015) CAGR is 9.05% (Including dividends) and the longterm inflation rate (19132015) is 3.18%. As such I consider 12.23% as an appropriate base for the required rate of return. If the company in question possesses an economic moat which gives it pricing power it can pass the cost of inflation on to the consumer, in this instance one could reasonably omit inflation. Conversely if the company is perceived as being exposed to certain nonmarket risks an appropriate addition to the rate may be applied). 
The ZeroGrowth Rate Model assumes that dividends remain static and thus the Intrinsic Value is equal to the annual dividends divided by the required rate of return. This model can be used to value preferred stock where the dividend is a fixed percentage of it's par value. Note that the intrinsic value of a fixed growth stock can still change if it's perceived risk alters as this requires an appropriate amendment to the required rate of return.
For example; If a zero growth stock has an annual dividend of $2 and the required rate of return is 10% (Expressed as 0.10) then it's Intrinsic value is $20 2/0.10 = $20 
ConstantGrowth Rate DDM (Gordon Growth Model)
IV = D1/(rg) IV : Intrinsic value D1 : Next year's expected dividend r : Required rate of return g : Dividend growth rate 
The ConstantGrowth Rate Model assumes a fixed rate of growth each year and as such it is useful for valuing the stock of mature slowgrowth companies where the dividend growth rate has been stable and predictable over the preceding years. To find stocks which fit this criteria one can consult the lists of Dividend Aristocrats, Champions and Contenders
For example; If a stock with a stable growth rate has an expected dividend of $3 the next year, the dividend growth rate has been determined as 5% and the required rate of return is 10% then it's intrinsic value is $60 3/(0.100.05) = $60 
VariableGrowth Rate DDM (MultiStage Growth Model)
IV = D1/(r+1)1 + D2/(r+1)2 + D3/(r+1)3 + . . . + Dn/(r+1)n IV : Intrinsic value D1 : Next year's expected dividend D2 : Dividend expected in yr 2 D3 : Dividend expected in yr 3 Dn : Dividend expected in yr n r : Required rate of return 
The VariableGrowth Rate Model can take many different forms assuming two, three or more varying rates of growth. The most common is the three stage growth model which assumes an initial high rate of growth, a transition to a slower growth rate and then a subsequent transition to a stable and sustained rate of growth. In order to construct this model the constantgrowth DDM is extended assuming different rates for the corresponding stages of assumed growth. The present intrinsic values of each stage are then added together to determine the intrinsic value of the stock.
