Dividend growers outperformed all dividend categories for the past 48 1/4 years with less risk. This is our conclusion based on data provided by Ned Davis Research. The research focuses on dividend payers, non-dividend payers, and dividend cutters. Note that the pattern of dividend growers outperformance holds for both the entire period of analysis and each sub-period (First Table). It also holds that growers experienced lower volatility for both the entire period and each sub-period (Second Table). In this note, we address why we think this phenomenon exists and what it could mean to investors.

Return By Dividend Category (Annual)

PeriodIncreasedPaidNo ChangeNot PaidCut
1973-21 (April)10.6%9.5%7.0%4.8%-0.8%

Volatility By Dividend Category (Annual)

PeriodIncreasedPaidNo ChangeNot PaidCut
1973-21 (April)16.1%16.9%18.5%22.2%25.1%

Why Do Dividend Growers Generate Superior Risk-Adjusted Returns?

There are five reasons why investors should prefer dividend growers based on years of research and study.

  1. A component of Gordon’s (1962) constant growth equity valuation model is the growth term. An analyst has some basis for assuming a future growth rate when a stock has had consistent growth in recent years. Yet, it is hard to estimate a future growth rate for a stock without an established track record of growth.
  2. Lintner (1956) notes that firms raise dividends when earnings rises appear permanent. Thus, firms that increase their dividends assume a positive outlook for profitability.
  3. Barth (1999) shows that firms with rising earnings achieve higher price-earnings ratios. This, in turn, suggests favorable valuations of consistent dividend payers.
  4. Dividends instill discipline in companies that facilitate corporate governance and financial health. Paying consistent dividends reduces corporate resources for projects. This, in turn, guides capital to the most productive opportunities.
  5. Most importantly, we believe dividend growers tend to be of higher quality than broader market issuers. This is evident in earnings quality, earnings level and consistency, and leverage. Dividend growers tend to have superior financial strength, flexibility, and discipline.

How Can Consistently Growing Dividends Benefit Investors?

Dividend growers can provide some downside protection in bear markets and help provide a buffer against rising bond yields. This is because many dividend growers, like technology and industrials, have lower payout ratios and higher earnings growth. By contrast, high yield stocks cluster in highly interest-sensitive sectors, like real estate and utilities, with high dividend payouts and low growth. The stocks of these companies tend to underperform when interest rates increase.

Dividend growers contribute cash flows to investors in a predictable manner. Dividend payouts to investors contribute to long-term total returns when reinvested. Also, investors can use these cash payments to fund retirement and long-term liabilities.

Dividend growers can be an essential component of a diversified portfolio as they exhibit low volatility and imperfect correlation with other assets. These traits are generally seen as positives for wealth accumulation due to a minimal drag on wealth compounding.


Dividend growth makes sense following a year of turbulence and high market valuations. Dividends are predictable and tend to function as a marker of quality. Thus, dividends are a key to long-term success. WCA’s value proposition is to focus on a growing stream of dividends. This contrasts with managers that chase dividend yields, performance, momentum, or other reactive strategies.

Kevin R. Caron, CFA
Senior Portfolio Manager

Chad Morganlander
Senior Portfolio Manager

Matthew Battipaglia
Portfolio Manager

Steve Lerit, CFA
Senior Risk Manager

Paul Clark, CFA
Senior Portfolio Manager
Municipal Fixed Income

Rick Marrone
Senior Portfolio Manager
Municipal Fixed Income

Daniel Urbanowicz
Senior Portfolio Manager
Municipal Fixed Income

Suzanne Ashley
Internal Relationship Manager

Eric Needham
Director, External Sales and Marketing

Jeffrey Battipaglia
External Sales and Marketing


The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by us and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. There is no guarantee that the figures or opinions forecast in this report will be realized or achieved. Employees of Stifel, Nicolaus & Company, Incorporated or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within. Past performance is no guarantee of future results. Indices are unmanaged, and you cannot invest directly in an index.

Asset allocation and diversification do not ensure a profit and may not protect against loss. There are special considerations associated with international investing, including the risk of currency fluctuations and political and economic events. Changes in market conditions or a company’s financial condition may impact a company’s ability to continue to pay dividends, and companies may also choose to discontinue dividend payments. Investing in emerging markets may involve greater risk and volatility than investing in more developed countries. Due to their narrow focus, sector-based investments typically exhibit greater volatility. Small-company stocks are typically more volatile and carry additional risks since smaller companies generally are not as well established as larger companies. Property values can fall due to environmental, economic, or other reasons, and changes in interest rates can negatively impact the performance of real estate companies. When investing in bonds, it is important to note that as interest rates rise, bond prices will fall. High-yield bonds have greater credit risk than higher-quality bonds. Bond laddering does not assure a profit or protect against loss in a declining market. The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains. Changes in market conditions or a company’s financial condition may impact a company’s ability to continue to pay dividends, and companies may also choose to discontinue dividend payments.

All investments involve risk, including loss of principal, and there is no guarantee that investment objectives will be met. It is important to review your investment objectives, risk tolerance, and liquidity needs before choosing an investment style or manager. Equity investments are subject generally to market, market sector, market liquidity, issuer, and investment style risks, among other factors to varying degrees. Fixed Income investments are subject to market, market liquidity, issuer, investment style, interest rate, credit quality, and call risks, among other factors to varying degrees.

This commentary often expresses opinions about the direction of market, investment sector, and other trends. The opinions should not be considered predictions of future results. The information contained in this report is based on sources believed to be reliable, but is not guaranteed and not necessarily complete.

The securities discussed in this material were selected due to recent changes in the strategies. This selection criterion is not based on any measurement of performance of the underlying security.

Washington Crossing Advisors, LLC is a wholly-owned subsidiary and affiliated SEC Registered Investment Adviser of Stifel Financial Corp (NYSE: SF). Registration with the SEC implies no level of sophistication in investment management.