Year-Over-Year Dividend Growth
I consider Year-Over-Year Dividend Growth to be the “holy grail” or the “secret sauce” of dividend investing. If you learn just one thing from my website, let it be the power of dividend growth over time.
Year-Over-Year Dividend Growth is the annual growth rate of a company’s dividend, indicating the increase or decrease in the amount of dividend paid from one year to the next.
Understanding Dividend Growth
As we explore the significance of dividends in the investment world, it’s vital to grasp the concept of year-over-year dividend growth and its pivotal role in shaping investor expectations and portfolio performance.
Definition of Year-Over-Year Dividend Growth
Year-over-year dividend growth refers to the increase in the amount of dividends paid to shareholders from one year to the next.
This metric is crucial because it indicates not only the company’s current profitability but also its potential for future growth and financial stability.
A consistent rise in dividends is often interpreted as a sign of a company’s strong performance and management’s confidence in its future cash flows.
Year | Dividend per Share |
---|---|
Year 1 | $1.00 |
Year 2 | $1.05 |
Year 3 | $1.10 |
In this table, the company shows a year-over-year dividend growth rate of 5%.
Importance of Dividend Growth
The importance of dividend growth cannot be overstated for long-term investors. For one, it can serve as a hedge against inflation, ensuring that our returns do not diminish in purchasing power over time.
Moreover, a growing dividend can be a signal of a healthy and expanding business, often resulting in a more attractive investment opportunity.
Our portfolios can benefit greatly from companies exhibiting steady dividend growth, as it typically reflects a positive trend in earnings and a commitment to shareholder returns.
Carefully selecting stocks with a history of increasing dividends can lead to a compounding effect, boosting our investment returns substantially over the years.
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