Sunday, September 6, 2015

Metric: Years of Dividends Growth


Years of Dividends Growth

When I analyze companies for inclusion in my portfolio, one useful metric is the number of years of dividends growth. The higher the number, the better. This little piece of data tells you a lot of things.

  1. Management is focused on setting aside a bunch of cash to return back to the shareholders. This takes planning and commitment especially for the cyclical companies.
  2. Over the long term, the company is growing its earnings. This is important since the source of the dividends eventually comes from earnings. If the earnings stop growing, the dividends will eventually get smaller and eventually, the payments will stop.
  3. Over the long term, growing dividends increases the intrinsic value which also applies upside pressure on the stock price (in conjunction with earnings growth).
Example: JNJ

For the first two points, good management and growing earnings are key traits of a good company. The last point is always a good thing for all investors.

That's why dividend cuts are bad signs for dividend investors.

What about companies holding their dividends for a year?

Some businesses may not raise their dividends due to the cyclical nature of their industries. They just stabilize their dividends for a couple of years or so. Still, if you look at the dividend plots over the years and compare with other trends like earnings growth etc, it gives you a good idea of these companies also.

That's why I tend to favor companies on my watchlist with more than 10 years of growing dividends. A smaller number is okay if the other criterias indicate an outstanding company.

The dividend growth rate for the older Dividends Champions are often lower than the young ones. So, I use free number of years growth to gauge slower growth.

Where to get this data?

My first source is David Fish’s CCC list. You can use as well as searching the investor relationship homepage.

Should I just use this metric?

Of course, this is just one of the many metrics I use for my dividend stock analyses.
I have to admit, the years of dividends growth is one of the easier metric to understand and use.



  1. 10 is a good metric,that would include the 2008-2009 cash. I have a few, but they are tend to pay lower than 3%.

    1. Vivianne, definitely! Companies that continued their dividend payments during the Great Recession are bulletproof.

  2. I do agree D4s, but I like to look at the growth rate and the chart at the same time as years of growth. If they increase dividend only 1% annually but EPS is up 25% then you would be wise to understand why. I look at graphs to see if they just missed one year of growth and therefore are off of Mr Fish's list but maybe they had a very valid reason for missing a year.

    I know, I'm digging too deep. You are right, if you want a quick metric to filter out some companies, look at 10 year div growth because it's an easy one to understand. As you said though, it's just one metric of many. Good explanation!

    1. Adam,

      You are correct. This particular metric is a simple gauge - you need to use it in conjunction with others to make sense of things.

      BTW I am trying to build a metrics list to link to my criteria table which I will release in google sheets so that anyone can build their own criteria table/screener. This is just the first "metrics" articles of many.


  3. I'd be very interested to read your metrics list. I'm at the beginning stages of creating my own. I'm very aware of the need to take a more measured approach as I continue my new investing "career" rather than basically picking companies of the CCC list.

    1. Thanks Brian.
      The metrics table is still something I am thinking about. I think the best way is to slowly build the pieces (hence this first article).
      The alternative is to release my criteria table, but this is definitely not prime time.