Dividend Growth·Aristocrats
The degree to which a company has steadily raised its dividend year after year — companies with long records are called "Dividend Aristocrats."
Dividend growth rate = (this year's dividend − last year's dividend) ÷ last year's dividend × 100
A company that has raised its dividend for a long time and consistently is seen as having a strong commitment to returning cash to shareholders and a stable business.
In plain terms
How much the dividend is right now (dividend yield) and whether the dividend has been raised year after year tell you two different things. If a company lifts it a little each year, the dividends you receive grow the longer you hold.
In the US there are companies that have raised their dividend every single year for more than 25 years; these are called "Dividend Aristocrats."
What it tells you
A long, steady record of raising the dividend is read as indirect evidence that earnings and cash flow have grown steadily over that time.
Even if the current dividend yield is low, for a company raising its dividend quickly the ratio of "dividends received against the price I paid" can keep growing the longer you hold.
Formula
Dividend growth rate = (this year's dividend − last year's dividend) ÷ last year's dividend × 100 Dividend Aristocrats = S&P 500 companies that have raised their dividend every year for 25 years or more
What high or low means
A company that has raised its dividend for a long time and consistently is seen as having a strong commitment to returning cash to shareholders and a stable business.
Conversely, dividend growth stopping or the dividend being reduced (a cut) is one of the signals the market takes most seriously. Management tries to protect the dividend to the very end, so cutting it in the end is close to an admission that "we can no longer hold out."
"Raised it for a long time" does not guarantee "will keep doing so." In fact, the Dividend Aristocrat title can become a shackle: in straining to maintain the dividend, a company may fail to make needed investments or take on more debt.
You need to also check whether the dividend is paid out of free cash flow (FCF) (the payout ratio) to see whether that growth can continue. If more is being paid out than the cash coming in, it is hard to sustain.
Focusing only on dividend growth can mean overlooking a company whose underlying business has stopped growing.
Companies like Coca-Cola, P&G, and Johnson & Johnson have raised their dividends every single year for decades without a single skip, making them classic "Dividend Aristocrats."
Raising dividends for that long requires cash flow steady enough to weather most downturns, so the Dividend Aristocrat list is itself viewed as one indicator of how consistent a business has been.
That said, a record of "decades in a row" does not guarantee the future. Management that doesn't want to break the streak may strain to keep paying out more than the company earns (an excessive payout ratio), and then cut sharply all at once when the business falters (GE, once a symbol of dividends, went that way). A long streak is evidence of consistency and, at the same time, a signal to also check whether the streak is being maintained by stretching too far.
Metrics to read alongside
Guides that cover this term
See it in real stocks
Search US stocks on Stocklore to see SEC-filing-based financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.