7Month 11Dividend growth strategy outpaces high-dividend stocks
A strategy that invests in companies that steadily increase dividends is drawing more attention than high-dividend-focused investing. Emphasis is being placed on dividend sustainability and the potential for increases, while stocks chased only for their high current yields are being pointed to as a risk.
A trend is emerging in which a strategy of investing in companies that steadily raise dividends is pushing out high-dividend stocks. This approach is characterized by focusing on the ability to increase dividends rather than on the dividend level itself.
Dividend growth strategies build portfolios around companies with a record of maintaining or raising dividends each quarter. Such companies gradually increase dividends, creating the effect of higher dividend income over the long term.
On the other hand, high-dividend stocks offer a high current payout, but their dividends can be unstable. Some of these are assessed as having a risk of cutting dividends due to earnings pressure or high debt.
From an investment approach perspective, the process of checking the “quality” of a dividend is important. The key is not how much dividend is paid, but how steadily it has been increased and whether it is supported by corporate earnings.
In the market, products and funds that track dividend growth strategies are increasing. The basis cited for investors’ shifting interest is the compounding effect of dividends and the improvement in long-term cash flow that comes with dividend increases.
However, the risk remains that the dividend growth trend could stall if the economy slows or corporate earnings deteriorate. Investors should review both the source of dividends and the company’s financial condition.
Sources: Yahoo Finance
Bullstory synthesized this report from the linked sources. AI may have assisted the writing process. Check the original reports for factual confirmation.