Daily Spotlight: Three Signals from Dividend Growth

Summary

Dividend growth is one of our most-important investment themes as we head into the second half of 2024. We think companies that raise 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 management is confident enough in the near-term outlook to raise the payout aggressively. This third factor is especially important during periods of potential economic slowdown or weakness. 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, such as 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 rates

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