LetsGrow (@LetsGrow) en getquin

10Lun·

Is Dividend Growth dead?

The more I look at the development of dividends from popular growth stocks, the more often I notice a negative trend. Companies that were known for consistently announcing double-digit percentage increases in their dividends have been increasing them in ever smaller steps for around two years.

I have therefore all the shares in my portfolio under this aspect. To do this, I compared the long-term growth rate over 10 years and the last announced dividend increase.

My entire portfolio is heavily geared towards dividend growth, so the results should be representative. These are the examples of recent dividend increases that I could find to support my hypothesis:

[Share: Last annual dividend increase (10Y: 10-year annual dividend increase)]

AbbVie: 4.7% in October 2023 (10Y: 14.1% p.a.)
Amgen: 5.6% in December 2023 (10Y: 16.3% p.a.)
Apple: 4.3% in May 2023 (10Y: 8.5% p.a.)
Best Buy: 4.5% in March 2023 (10Y: 18.4% p.a.)
Blackrock: 2% in January 2024 (10Y: 11.5% p.a.)
Corning: 3.7% in February 2023 (10Y: 11.1% p.a.)
Crown Castle: 0% in October 2023 (9Y: 14.4% p.a.)
Huntington Ingalls: 4.8% in November 2023 (10Y: 25.9% p.a.)
LCI Industries: 0% in May 2023 (7Y: 17.0% p.a.)
Lockheed Martin: 5% in October 2023 (10Y: 9.8% p.a.)
Prudential Financial: 4.2% in February 2023 (10Y: 11.2% p.a.)
T. Rowe Price: 1.7% in February 2023 (10Y: 12.4% p.a.)
Texas Instruments: 4.8% in October 2023 (10Y: 16.7% p.a.)
UPS: 6.6% in January 2023 (10Y: 10.1% p.a.)

Of course, I also have some counterexamples found in my portfolio: American Tower, Bank OZK, Broadcom, Canadian Natural Resources, CME Group, Darden Restaurants, Federal Agricultural Mortgage, Morgan Stanley, Packaging Corporation of America, Skyworks Solutions, The Home Depot and Visa.

Do you notice similar developments in your portfolio/watchlist?

33 Comentarios

Saschko@WarrenamBuffet

10Lun

Well, you just have to look at the last 2 years: Inflation, higher interest rates...some are cautious with increases...I think there will be other times. Hardly any company can consistently raise dividends by 15-20 percent per year for 10-20 years.

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Rmann@Epi

10Lun

Next attempt at an explanation:
The selection of your stocks for the DivGrowth strategy may be subject to recency bias. You prefer to have exactly those stocks in your portfolio that had a maximum DivGrowth in the years before the purchase. In other words: you always catch the DivGrowth stocks at their DivGrowth peak when they best fulfill your criteria.
If I had to guess, I would say you have been following the strategy for exactly 2 years and are holding the stocks you selected 2 years ago according to MaxDivGrowth?

If that's right, you would have to adjust your strategy and run some kind of rotating DivGrowth strategy or develop a DivGrowthGrowth strategy where it's not the DivGrowth of the last years that counts, but the growth of growth. 🤷

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Nico Uhlig@RealMichaelScott

10Lun

In times of rising interest rates and uncertain economic development, people tend to play it safe. Many now prefer to use the money they have earned to repay debts.

But that is normal. It makes more sense to look at dividend increases over an entire economic cycle and, above all, to have reasonable expectations.

It is not said for nothing that "past performance is not an indicator of future performance". Very few companies can increase their dividends by 15% a year for 20 years (approx. sixteen-fold increase).

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Kevin E.@KevinE

10Lun

I haven't noticed that much in my portfolio so far. Last increases:
PepsiCo: +10%
McDonald's: +10%
Microsoft: +10%
Broadcom: +14%
Mastercard: 15.7%
Waste Management: 7.7%

All more or less in line with the historical average.

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Klus@Kluuus

10Lun

I always ask myself what the advantage is of looking at dividend growth instead of looking directly at profit growth? Without growing profits, no growing dividend? The dividend is more or less the same, only additionally distorted by the payout ratio?

If the company starts with a low dividend (e.g. 0.5%) and a low payout ratio, it can increase the dividend above average for a few years, but at some point it is ultimately limited by profits and their development. Take Amgen as an example:

Payout ratio
Currently 65.08 %
Average 5 years 54.87
Average 10 years 46.32 %

Here you can see that the stable or rising dividend has to be paid by an ever larger proportion of the profit. This is not a trend that should or can continue forever.

I look forward to your view on this!

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Waldemar@Wowa83

10Lun

I could imagine that at some point it simply becomes more difficult to achieve the same high growth rate. It's easier to grow when you're a bit smaller. And so over time there will be fewer that can hold it.

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Daxdaniel@Daxdaniel

10Lun

I believe that particularly high dividend growth could be expected from stocks that are currently focusing on growth but have lower percentage growth expectations in the future and will then distribute more of their profits.
For example, companies such as Microsoft, Apple etc. will continue to have strong dividend growth from a currently low percentage level.
Where the dividend yield is already quite high due to past growth, there is of course less room for upside.

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Rmann@Epi

10Lun

A number of companies, especially US companies, have started to buy back shares instead of paying out dividends in recent years due to low interest rates and tax laws.
Can you also calculate the dividend yield on the outstanding shares in your statistics? The result could look different.

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Felix@Investor_in_Jogginghose

10Lun

Are these quarterly increases compared to annual values?

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ashish J.@JaqenH

10Lun

Dividend growth is an oxymoron. You can either have dividends (short term gratification) or growth . not both. I don't know why people think dividends are great ? You don't keep your money invested. You remove profits every month and get taxed on it.

How is this a great strategy ?

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