Unlocking the Power of Dividend Growth in Uncertain Times
As we step into 2025, one investment theme stands out from the rest: dividend growth. Companies that consistently raise their dividends at a double-digit rate are sending a strong signal to investors amidst market volatility. This signal is threefold: a robust balance sheet, a management team focused on shareholder returns, and a board confident in the company’s near-term earnings outlook.
A Historical Perspective on Dividend Growth
The S&P 500’s dividend growth rate has averaged 2.0% per year since 1970. However, this growth rate has not always been steady. During economic slowdowns, bear markets, and the COVID-19 pandemic, dividend growth has been negative. On the flip side, double-digit dividend growth is a rare occurrence, happening only six times in the past 50 years.
What Drives Dividend Growth?
So, what drives dividend growth? In recent years, we’ve seen dividend growth accelerate to 7% in 2018-19, coinciding with the resolution of trade wars and the Federal Reserve’s dovish stance on interest rates. This period was marked by a surge in stock prices, highlighting the importance of dividend growth in driving market performance.
Why Double-Digit Dividend Growth Matters
In times of economic uncertainty, companies that can maintain a strong dividend growth rate are beacons of hope. They demonstrate a commitment to shareholder returns, a robust balance sheet, and confidence in their near-term earnings outlook. As investors, we should take note of these companies, as they are more likely to weather economic storms and provide a steady stream of income.
The Road Ahead
As we navigate the complexities of 2025, dividend growth will remain a crucial theme. By focusing on companies that consistently raise their dividends at a double-digit rate, investors can position themselves for success in uncertain times. With the right strategy, dividend growth can be a powerful tool in building a resilient and profitable portfolio.
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