Dividend Growers: Distinctly Different
Not all dividend strategies are created equal. This paper explains how focusing on companies that consistently grow dividends may improve long‑term returns and resilience.
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Key takeaways
- Dividend growth strategies historically have delivered competitive returns and favorable risk ratios.
- In contrast to high absolute yield strategies, dividend growth strategies seek companies likely to increase per-share dividends.
- Dividends are just one component of a firm’s resource allocation strategy. Companies that grow dividends also tend to be prudent and productive allocators of company resources.
Executive summary
Focusing on dividend growth as a distinct equity strategy
At Allspring, we believe investors can enhance long-term equity outcomes by emphasizing companies with the ability to consistently grow their dividends rather than those that prioritize high absolute yield. Instead of treating all dividend-paying stocks as equivalent, this paper advocates distinguishing dividend growers as a unique segment, characterized by durable earnings, disciplined capital allocation, and sustained per-share payout increases. These companies tend to occupy a “sweet spot” between low yield growth stocks and high yield value stocks, offering a more balanced approach to income and capital appreciation.
Dividend growers are defined by two key attributes: a persistent pattern of increasing dividends over time and a demonstrated ability to allocate resources productively to support those increases. This dual focus reflects management discipline and confidence in future cash flows, aligning shareholder returns with long-term business reinvestment and value creation.
The role and value of dividends in total return
Dividends play a multifaceted role in investor outcomes. They contribute meaningfully to long-term total returns—especially when reinvested—while also serving as a source of income to meet liabilities such as retirement spending. Regular dividend payments can reduce uncertainty during periods of market volatility and signal financial strength and sustainability.
However, not all dividend strategies are equal. High dividend yield approaches may prioritize current income at the expense of growth, at times reflecting limited reinvestment opportunities or underlying business challenges. In contrast, dividend growth strategies emphasize the trajectory of payouts rather than their absolute level, seeking companies capable of compounding both earnings and distributions over time.
Quality, resilience, and portfolio implications
Dividend growers tend to be high-quality companies with strong capital allocation and higher returns on invested capital—attributes that have historically led to better risk-adjusted outcomes over time. They have also demonstrated lower volatility and greater resilience in downturns, helping portfolios “win by losing less.” As a result, dividend growth strategies can serve as a core equity allocation, offering a blend of income, growth, and downside protection across market cycles.
Conclusion
Focusing on dividend growth—rather than simply maximizing yield—can lead to more consistent long-term outcomes. By investing in companies with disciplined management, durable cash flows, and the ability to compound dividends over time, investors may enhance returns while better managing risk through changing market environments.
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Video
The Dividend DivideAllspring experts explore the evolving role of dividends, debating their value as a source of stability, a tool for discipline, and their impact on flexibility in today's market.
All investing involves risks, including the possible loss of principal. There can be no assurance that any investment strategy will be successful. Investments fluctuate with changes in market and economic conditions and in different environments due to numerous factors, some of which may be unpredictable. Each asset class has its own risk and return characteristics.
This material is provided for informational purposes only and is intended for retail public distribution in the United States. Use outside the United States is for professional/qualified investors only.
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