Most gifts are given once, then that’s it.
Even if we enjoy a gift, it eventually wears out.
That amazing original iPhone you bought several years ago probably doesn’t feel so amazing anymore (does anyone even have an original iPhone anymore?).
Source: Mashable
Dividend growth stocks are different…
Rather than their utility (what they provide) decreasing over time, they give you greater rewards as time goes by. Your iPhone doesn’t – its utility depreciates over time as new and better versions are released.
‘Gifts That Keep On Giving’ Stocks
Many stocks pay more dividends every year.
This means that the present you bought yourself (your dividend stock) is giving you more than the year before – every year. How many other gifts can do that?
None come to mind…
The Dividend Aristocrats Index is filled with ‘gifts that keep on giving’ stocks.
To be a Dividend Aristocrat, a stock must have paid increasing dividend for 25 years in a row (and be a member of the S&P 500).
Dividend History Matters
Twenty five years is a long time.
Interestingly, stocks with 25+ years of dividend increases have a much lower probability of freezing or decreasing their dividends than stocks with 10 to 24 years of consecutive dividend increases.
The image below shows this phenomenon:
Source: Sure Dividend Study
Does something magical happen when a stock goes from 24 years of consecutive dividend increases to 25 years?
Of course not.
What I believe the study is picking up on is that dividend history matters. The longer a dividend streak, the more evidence you have of a long-lasting, durable competitive advantage.
If a company has paid increasing dividends for say 40 years (as an example), what CEO wants to be the one to break the streak? That’s not a good legacy to have.
The ‘Snowball Effect’
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