Last time we showed research that revealed that dividend-paying stocks have outperformed non dividend-paying stocks over the last three years. Importantly, the research also showed that the higher the dividend growth of a stock, the higher its total rate of return, up to a point. We have previously offered research showing that among dividend paying stocks that dividend growth is the best indicator of long-term price growth. Thus, companies that are producing high dividend growth and not being rewarded with high price appreciation are of particular interest to us. Our experience has taught us that these kinds of companies will at some point have a price growth spurt that will close the performance gap.
Let us give you an example of what we mean by this: Becton Dickinson (BDX) has hiked its dividend by an average of nearly 15% per year. During this time, its stock price has risen by only about 5% per annum. Of course this has been a time when almost all health-care stocks have underperformed the market. However, the difference between BDX and it brethren in the sector are stark. BDX has not only produced dividends and earnings growth much higher than the average stock in the health-care sector, but it has also enjoyed higher dividend and earnings growth than the average stock in the S&P 500. Yet this strong fundamental performance has produced sub-par price gains.
Source: Rising Dividend Investing
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