At the risk of spoiling the surprise for those who haven't been following along, high-yield stocks have actually performed quite well in the past -- at least when it comes to overall investor returns. However, when it came to dividend growth, I found that many high-yielding stocks ended up seeing more dividend cuts than gains. Do the dividends of stocks with lower yields but higher dividend growth rates avoid a similar fate? I figured I'd have to dig in to find out.
To take a closer look at what we might be able to expect from companies that have cranked up dividend growth, I looked back to the year 2000. Specifically, I took the 500 largest companies that had a dividend payout ratio of 10% or more for 1999, and then grabbed the 25 that had the fastest dividend growth over the preceding three years. The stocks in this group had a much lower starting yield than the high yielders that I looked at last week, but those dividends fared much better than those of the high yielders. While this group grew dividends by nearly 180% between 1999 and today, the other group saw dividends shrink by 25% on average.
Source: Motley Fool
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