Tuesday, January 31, 2023

Rising Dividends = Rising Returns

The research linking rising dividends with superior long-term returns continues. A report from Ned Davis Research, described in the Wall Street Journal article "Look for Firms That Raise Dividends". Below are some highlights of the article:

  • Since 1972, S&P 500 stocks that consistently increased their dividends returned 10.4% total return (dividends + share price appreciation) while those that did not increase their dividends returned only 8.2%.
  • The 2.2% advantage of the dividend raisers would equate to an additional $1,802 per $100 invested in 1972.
  • "A board that raises dividends, year in, year out, shows it is confident that the company's outlook is strong," says Rick Helm, manager of Cohen & Steers Dividend Value.
The article rightfully noted that a history of rising dividends doesn't guarantee the company can sustain the increases. After the sub-prime melt-down there are a significant number of companies that could not maintain their dividend such as Citi (C) and Washington Mutual. Investors must perform their own due diligence to determine if a company can sustain its dividend.

Dividends are an excellent measure of the quality-of-earnings; cash is hard to fake!

Full Disclosure: No position in the aforementioned securities. 

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