Bigger isn’t always better when it comes to dividends.
Deutsche Bank recently pointed out “the first half of 2018 has seen the
sharpest underperformance of dividend stocks since the financial crisis”, as
measured by the Dividend Aristocrats.
Most readers are already familiar with this group of 53
names within the S&P 500 index, many paying out billions of dividends each
quarter, with the most common trait being they’ve each boosted payouts a
minimum of 25 consecutive years.
However, another item several of the Aristocrats share in
common, is that the Law of Large Numbers is catching up to them. They may be
paying out more to investors each year, but as my colleague Brett Owens has
often pointed out, it’s how much the dividend is growing that is the best
predictor for building wealth over time.
This is especially the case when interest rates are rising.
An annual payout increase of a penny or two may produce a positive headline and
keep you in the Aristocrat club another year, but these three names are barely
treading water against other income investments and certainly not keeping up
with the 7.2% average year-to-date dividend growth in the S&P 500.
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Nice article and thanks for the sharing.
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