You may recall Sir Isaac Newton’s law of interia that states: “An object in motion tends to stay in motion …”
If Newton were alive today, he might have applied his law of inertia to investing in the stock market.
Companies which have dependably increased their dividends every year, including through periods of financial crisis such as 2008 and 2001, have been a prudent and profitable investment strategy over the long term.
Historically, companies that grew dividends outperformed, with lower volatility.
Below are two charts from Ned Davis Research based on an analysis of Russell 3000 stocks from February 2, 1987 through December 31, 2016. The left chart shows the return of 4 segments of the Russell 3000 based on:
- Dividend Growers (dividends per share increased): 13.8%
- Dividend Non-Changers (no change in dividend per share): 10.1%
- Dividend Non-Payers (no dividends paid): 7.4%
- Dividend Cutters (dividend per share decreased): 6.6%
The right chart show that these returns were generated with lower volatility (less “ups” and “downs”):
- Dividend Growers (dividends per share increased): 14.5%
- Dividend Non-Changers (no change in dividend per share): 17.0%
- Dividend Non-Payers (no dividends paid): 24.3%
- Dividend Cutters (dividend per share decreased): 22.3%
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While past performance is not indicative of future results, historical returns show that allocating a portion of your overall portfolio to this strategy have provided above average returns with reduced volatility.
As an independent Registered Investment Advisor, I manage separated personal, IRA, profit sharing and trust accounts that follow this discipline. Please call me at (610) 999-3599 or click here to receive information on investing in dividend growers.