What is Dividend Growth Investing?

Thursday, Aug 23 2012 by
What is Dividend Growth Investing

In brief 

An income-focused stock selection strategy that involves buying stocks with a long history of increasing dividend payments (known as Dividend Aristocrats or Dividend Champions) and reinvesting any proceeds. 

There is usually a strong Buffettesque focus on the quality of the franchise supporting the business to ensure sustainability of the dividend payment.


It's hard to pin down the exact origins of Dividend Growth Investing (DGI). Clearly a recognition of the importance of dividends goes back as far as Benjamin Graham, who wrote "The prime purpose of a business corporation is to pay dividends to its owners" and beyond, but the strong emphasis on consistent dividend growth is more recent. The thinking behind DGI harks back at least as far ex-Fidelity fund manager and investing legend Peter Lynch who wrote in his 1994 book Beating the Street:  

“The dividend is such an important factor in the success of many stocks that you could hardly go wrong by making an entire portfolio of companies that have raised their dividends for 10 to 20 years in a row. Moody’s Handbook of Dividend Achievers – one of my favorite bedside thrillers – lists such companies. Here’s a simple way to succeed on Wall Street: buy stocks from the Moody’s list and stick with them as long as they stay on the list.”

In recognition of companies with a 10 year history of increasing dividends, Moody's Investor Service (now part of Indixis) created its first Handbook of Dividend Achievers in 1983, while S&P's Dividend Aristocrats Index (25+ years of dividend increases) seems to have maintained since at least 1989.  

One of the earliest books to focus on DGI in detail as a strategy was Roxann Klugman's title, "The Dividend Growth Investment Strategy"  (published in 2001). Amongst other stories, this book described the investment strategy of Anne Schieber, a ex-government employee who built a $5000 lump sum in 1944 into $22 million by 1995 through dividend reinvestment & compounding. Miller Lowell also wrote in detail about DGI in his 2006 book, "The Single Best Investment: Creating Wealth with Dividend Growth". 

As a more structured/populist school of investment thinking, Dividend Growth Investing seems to have emerged in recent years out of the blogosphere, via sites like David Van Knapp's…

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