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Hi,
Dividends are a welcome sign for dividend investors.
And dividend growth is even more appreciated.
When a stock’s dividend per share is increased, shareholders get a boost to their passive income – without lifting a finger.
Dividend growth is measured in:
- Years of consecutive increases
- Percentage or compound increase over a number of years.
All other things being equal, longer streaks of consecutive increases and greater percentage increases are preferred.
Longer Dividend Streaks
Longer streaks are preferred because they show a company can increase dividends over a wide range of economic and competitive environments.
They show evidence of a durable competitive advantage. It’s no small feat to boost a dividend year-after-year for decades at a time, through recessions, wars, and epidemics.
Greater Percentage Increases
Greater percentage dividend increases are preferred because they show that the company is willing and able to pay more to shareholders. This is a sign management expects cash flow growth and stability on a per share basis.
And since dividends are paid with actual cash, they can’t be faked. A company cannot pay dividends out of fictional earnings. A company cannot pay dividends for any meaningful length of time without generating cash flows to support the dividend.
On Dividend Growth
Dividend growth is a powerful signal of a company's financial health, management's confidence, and commitment to long-term value creation.
In fact, dividend growth stocks have historically generated superior returns with less volatility relative to stocks with flat dividends, stocks that reduce their dividend, and stocks that don’t pay dividends
Source: Nuveen, Why Dividend Growth?, Figure 1.
The above fact should not be overlooked. It’s especially rare to find an investing factor that has historically offered – and I believe is likely to continue offering – both superior returns and lower volatility.
And it stands to reason that dividend growth stocks would provide both stronger returns and lower volatility versus non-dividend growth stocks.
That's because rising dividends are a positive signal of underlying business growth on a per share basis and consistent cash flow generation ability.
The Dividend Growth Signal
Dividend growth is a signal that doesn't get talked about enough in investing circles. Rising dividends are evidence of a company that:
- Consistently generates positive cash flows
- Has the ability to pay more to shareholders every year
- Has the desire to pay more to shareholders every year
Because of the above, dividend growth streaks are worth paying attention to.
And that's why Sure Dividend exists...
I started Sure Dividend in 2014 to help investors find the best high quality dividend growth stocks for the long run.
Sure Dividend is now currently trusted by more than 7,000 premium members, including more than 2,500 Sure Analysis Research Database (SARD) members.
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Email me directly at ben@suredividend.com with any questions.
To your compounding dividend income,
Ben Reynolds
Founder, Sure Dividend
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