By The Numbers: Beating The Market With Dividend Growth Stocks

Dividend growth investing is one of the most popular investing strategies in the market, and for solid reasons. Dividend growth investing is a straightforward and effective method to pick stocks, and the statistical data shows that dividend growth stocks tend to produce attractive risk-adjusted returns over the long term.
To begin with, dividend payments generate consistent cash distributions from the portfolio, and this is much appreciated by investors, especially those with recurrent income needs. Growing dividends also make overall portfolio returns more stable and predictable over time, since dividends are a more predictable source of returns than price fluctuations.
Perhaps even more important, dividend payments say a lot about a company’s fundamental quality. If a company is distributing consistently growing dividends to investors, this means that the business is generating more cash than it needs to retain. This is a clear sign of underlying financial strength.
The following chart from Hartford Funds, based on data from Ned Davis Research shows how companies initiating new dividends and raising their dividends year after year tend to produce market-beating returns over the long term.
When it comes to picking the best dividend growth stocks, looking at a company’s history of dividend payments is not enough. Variables such as dividend growth rate, payout ratios, and capital distributions through both dividends and buybacks are remarkably important to... Read more