Retirement Income Equity Selection Factor 2: Dividend History

Bruce Miller


By: Bruce Miller, CFP®

In my previous article, I discussed dividend yield, which is probably the best known and most used selection factor for evaluating dividend-paying equities. However, the dividend yield conveys only limited information and must be supported with additional selection factors to ensure a significant probability that a given equity might rise in the future.

Most investors have heard the “past performance is not a guarantee of future results” saying, which is invariably true for investing. However, while nowhere near a certainty, past dividend performance can be a reliable indicator of future performance – especially if additional metrics supports that outlook.

A dividend’s past performance is a fairly reliable indication of management’s commitment to the dividend and its competence in running the company.  A long history of growing dividends, through all manner of economic and business cycles, shows investors that the company is committed to them and that their business model lends itself well – at least historically – to generating the revenues and cash flows the company must have to continue or grow the dividends.

Unfortunately, unlike the yield or the dividend growth rate – which can be accurately calculated and evaluated against predetermined value ranges – there is no single and impartial rule to determine which dividend history is likely to provide positive future performance. There is no discrete formula here and no objective long-period studies of which I am aware.

David Fish publishes a free quarterly Excel spreadsheet of Dividend Champions, Dividend Contenders and Dividend Challengers – the so-called CCC sheet – on his The DRIP Investing Resource Center website. From this information, David has compiled an Excel spreadsheet that lists companies that have sustained and grown their dividend for at least the past 25 years (Champions), 10 years (Contenders) and 5 years (Challengers) through the most recent quarter.

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However, I would like to know how many companies failed to grow or cut their dividends during economic down cycles. Here are two tables from David Fish’s website that provide this information for the most recent economic down cycle that started in 2008 and the few years that followed:


The ‘Freeze’ column means that the companies have not grown their dividends for at least one year over the previous year. The mergers and acquisitions (M&A) and “Other” columns likely include companies that have spun off or split off a part of their operations as separate companies that took their share of the total dividend into the new business entity.

However, the more interesting part is the percent of those companies that discontinued their dividend growth based on the number of consecutive years the dividend had been growing – as shown in the table below for data 2008-2014:

The table indicates that companies which pay a growing dividend for at least 15 years appear to stand a better chance of sustaining their dividend growth than those whose dividend growth history is shorter. However, we should also note that 12 of the companies – or 6.6% – that cut their dividends have paid rising dividends from 35 to 39 years prior to the cut. Therefore, investors must remember that income risk is real. Dividend growth history by itself does not assure future dividend growth and income diversification is a necessary part of every income portfolio as a hedge to the unlikely dividend cut from a long-term dividend growth stock.

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Referring to the information in David Fish’s CCC list from the link above, the average current yield of Dividend Champions (February 2018) is 2.47% with 10 of the 119 listed stocks yielding 4% or higher. For the 221 Contenders, the average current yield is 2.87% with 40 stocks yielding 4% or greater. For the 532 Challengers, the average yield is 2.8% with 91 stocks yielding 4% or greater. Please note that this listing excludes preferred stock, bonds and any high-yielding stock that did not grow its dividend in a given year. While there are multiple websites that provide lists of dividend-paying stocks, I find that David Fish’s listings offer an excellent starting point for most income investors to begin their screening process, although this will require the user of this freely downloadable Excel Spread Sheet to know the basics of how to navigate around and make use of Excel’s basic features.

Evaluating a dividend history does not follow a specific plan. I can not just provide a precise formula that investors can use to plug in some figures and get a result that converts a dividend’s history into a future projection. However, I can share a few methods that investors can use to gain insights into what the dividend history represents and how to use it – in conjunction with other selection factors – to estimate the probability that an equity will continue distributing or growing its dividends.

The methods to evaluate dividend histories are best explained by looking at specific examples. Therefore, I will use five specific examples in my next article to illustrate and explain some of these evaluation methods before moving to the next retirement income equity selection factor – the dividend growth rate.

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Bruce Miller



Bruce Miller is a certified financial planner (CFP) who also is the author of Retirement Investing for INCOME ONLY: How to invest for reliable income in Retirement ONLY from Dividends and IRA Quick Reference Guide.

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