In today’s environment, investors are in an almost constant search of income-producing asset classes.
One particular area of focus has been dividend-paying equities—made attractive not only because of the current income but also because of the potential for future growth of that income.
We believe the recent trends for dividend growth discussed below have become an unmistakably positive signal for the market’s underlying fundamental value.
Putting Recent Growth in Historical Perspective
We examined the history of dividend growth of the S&P 500 index, as it is one of the most commonly used benchmarks available to measure the performance of U.S. equity markets and has dividend data extending back to its inception in 1957.
There are two notable points when we compare the latest readings to historical data:
1) Record Three-Year Growth: The recent three-year average annual dividend growth—13.59% for the period ending March 30, 2013—is a record in the history of the S&P 500. To be fair, this follows a record fall in dividends that occurred a few years earlier and in some ways represents a normalization of dividend levels.
2) 10-Year Growth Impresses: Despite the record fall in dividends during the last 10 years, the 10-year average annual dividend growth of 7.07% is still approximately 2 percentage points above the median 10-year growth rate. This gives us confidence about future dividend growth.
Rolling 3-Year and 10-Year Growth of Trailing 12-Month Dividend for S&P 500 Index (12/31/1960-3/31/2013)
Next page: The dividend stream