Higher Dividend Growth Has Been Rewarded

We recently completed an analysis to determine how companies with rising dividends have fared during the last three years, a time when overall dividend payments by S&P 500 companies were falling. We divided all dividend-paying companies in the S&P 500 Index into quintiles ranked according to their average annual dividend growth over the past three years. A sixth group consisted of those companies that do not pay dividends. We then computed the average total rate of return for each quintile over the three years.

The results are impressive and a bit surprising. The seventy companies with the highest average annual dividend growth rates over the past three years have outperformed 58% of all stocks in the S&P 500. By contrast, the companies with the lowest average annual dividend growth rate (actually a loss) only outperformed 28% of the stocks in the S&P 500. In looking at both dividends and earnings we see that high growth has not been rewarded with proportionately higher price growth. This is the primary reason that we now believe the sweet spot of the stock market is in the high dividend and earnings growth companies.

Source: Rising Dividend Investing

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