Summary
Dividend growth is one of our most-important investment themes as we head into 2025. We think companies that raise their dividends consistently at a double-digit rate are sending off three important signals amid all the recent market volatility: the company’s balance sheet is strong enough to pay a dividend; management is focused on providing shareholder returns; and the board is confident enough in the company’s near-term earnings outlook to raise the payout aggressively. This last factor is especially important during periods of potential economic slowdown, weakness, or uncertainty. On average, the dividends of the companies in the S&P 500 have grown 2.0% per year since 1970. At times, the dividend growth rate has been negative, for example during economic slowdowns in the early 1970s, 1980s and 1990s; the bear markets of 2000, 2008 and 2009; and the COVID-19 pandemic period. At the other side of the spectrum, double-digit dividend growth is rare. Only in six of the past 50 years has the average dividend growth rate been 10% or above. More recently, dividend growth accelerated to 7% in 2018-19, which was a good period for stocks as trade wars settled down and the Federal Reserve took a dovish stance on interest
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