1Anno·

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?


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33 Commenti

immagine del profilo
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.
26
immagine del profilo
@Dreamliner In addition to the "rule of big numbers" (high percentage increases quickly lead to exponential trends), I also see economic problems that have set this negative trend in motion. My initial question was of course deliberately exaggerated. I do not believe that dividend growth is dead, which is why my entire investment strategy is based on growth stocks. I therefore share your optimism for better times, although I am somewhat skeptical as to whether all popular stocks will achieve a turnaround.
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immagine del profilo
@LetsGrow absolutely. Not everyone will succeed, but as long as most of those you have in your portfolio do, it's all good :)
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immagine del profilo
1Anno
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. 🤷
8
immagine del profilo
@Epi that's a very good explanation. And indeed, you could call my strategy "DivGrowthGrowth", because I do indeed look at the *trend* of the dividend (i.e. second derivative of dividend growth). By analyzing the trend, I catch stocks that are growing their dividends at higher or at least consistently high CAGRs at the time of purchase. I have been following this strategy since the beginning of my stock market career, i.e. for about 5 years. The only thing I have noticed in the last 2 years is that some (not all) of my stocks have now broken this trend.
1
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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).
5
immagine del profilo
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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immagine del profilo
@KevinC more

eli lilly: 15%
Costco: +13.3%
ADP: +12%...
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immagine del profilo
@KevinC I also have MS, Broadcom and PepsiCo in my portfolio
immagine del profilo
@KevinC But you also have a lot of stocks in your portfolio that are showing a negative growth trend (falling CAGRs). So the mix is similar to mine.
immagine del profilo
@LetsGrow I have only been invested for 5.5 years. I believe that there will always be upward and downward movements. I don't yet know whether I've backed the wrong horses. My share performance (price + dividend) is currently higher than that of my ETF shares. That's why I'm sticking with it. As soon as I notice that I'm falling significantly compared to the VWRL, I'll react. However, short-term changes are not so important to me.
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immagine del profilo
@KevinC Same. I've been in it for almost 5 years and my portfolio has a TTWROR twice as high as the VWRL. So my performance gives me the right to stick with it.
immagine del profilo
@KevinC more precisely ~99% (my portfolio) vs ~47% (FTSE All-World) 😅
immagine del profilo
@LetsGrow I can hardly compare the overall performance because I have a large part in the VWRL in question 😅
immagine del profilo
@KevinC everything entered in the same securities account on GetQuin? Otherwise it would work with the premium function, but only if your ETF is in a separate custody account.
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!
1
immagine del profilo
@Kluuus Profits can fluctuate strongly in the short term, while dividends are less volatile due to the variability of the payout ratio. A clear trend - quasi profit growth adjusted for fluctuations - and the management's expectations for future profit growth can be better recognized in the dividend development.

Of course, it may also be the case that dividends rise faster than profits for a while and the payout ratio is increased. However, this is usually a temporary situation, as the management knows the "natural limit" and either adjusts the increases accordingly or expects stronger profit growth again in the future.

There are also some companies that increase their dividends sharply over long periods of time without significantly increasing the payout ratio. In these cases, the dividend is a simple indicator of profit growth.

When I analyze stocks, I usually still look at earnings and many other key figures (especially free cash flow). But that was not the aim here.
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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immagine del profilo
@Wowa83 I agree! The bigger companies get, the more difficult it becomes to grow exponentially at the already high level.
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immagine del profilo
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.
1
immagine del profilo
@Daxdaniel But Apple is a blatant counter-example. Meager dividend yield (and dividend itself), puny dividend growth.
immagine del profilo
1Anno
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.
immagine del profilo
@Epi To clarify: In my statistics, I have calculated the dividend increases per outstanding share. Taking share buybacks into account, the trend in dividends paid out could potentially be even more negative. This is because we then have a combination of lower dividend increases per share and a lower number of shares outstanding.
immagine del profilo
1Anno
@LetsGrow Hmm, then that's not it...
immagine del profilo
Are these quarterly increases compared to annual values?
immagine del profilo
@Investor_in_Jogginghose this is the last *annual* dividend increase with corresponding timing of the announcement compared to the *annual* long-term growth rate (10Y CAGR).
immagine del profilo
@Investor_in_Jogginghose i.e. last increase p.a. vs. long-term growth p.a. ... hope that's easier to understand now.
immagine del profilo
@LetsGrow so ttm to the month as they always say. Looks really bad.
immagine del profilo
@Investor_in_Jogginghose ttm stands for trailing twelve months, not to the month, as far as I know. But yes, the TTM dividend growth in each of the examples listed is significantly lower than the long-term annual dividend growth
immagine del profilo
@LetsGrow My whole life has been a lie.
1
immagine del profilo
@Investor_in_Jogginghose At the end, TTM stands for To The Moon 🚀🤣
immagine del profilo
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 ?
immagine del profilo
@reach2ashish the last sentence shows that you miss the bigger picture and explains why you think that way („short term gratification“). Capital markets literature has clearly shown that dividends contribute to total returns significantly and over long time periods that dividends are irrelevant to a company‘s stock price (dividend irrelevance theory). If you see the bigger picture, it’s actually long term investing strategy that allows allocation of cash flows into new assets (diversification) or consumption, both without reducing the share of ownership of an owned company. Selling ETF shares or individual shares is simply different, since selling shares effectively reduces your relative share of ownership compared to other investors. It will only be the same if other investors in dividend stocks re-invest their dividends in the same stock while you don’t.
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