Winning Dividend Stocks Are Bond-Like

After a stock makes it through the quality door, the first thing we look at is its dividend yield. Dividends are cash money. Dividend payments place a premium on a management team that focuses on the proper balance between the cash flows necessary to pay the dividends and the capital expenditures necessary to keep the cash flows growing. In short, dividends require a disciplined management team. We think this means that most companies who pay a regular dividend are less likely to be taking wild-eyed fliers with our money.

We learned a long time ago that dividend yield alone is not enough; dividend growth also plays an important role in the long-term performance of a stock. The following tables show the median total return over the past 12 months of stocks in the S&P 500 sorted by dividend growth quintiles. Our bottom line summation of what this strategy check is telling us is that, indeed, in this low interest-rate, slow growth environment our concept of “bond-like” stocks is still a winning strategy. The markets are rewarding higher quality over lower quality.

Source: Rising Dividend Investing

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