Insider Monkey
11 Magnificent Dividend Growth Stocks to Buy and Hold Forever
Fahad Saleem
8 min read

In This Article:

In this article, we will take a detailed look at the 11 Magnificent Dividend Growth Stocks to Buy and Hold Forever. For a quick overview of such stocks, read our article 5 Magnificent Dividend Growth Stocks to Buy and Hold Forever.

Amid eye-popping growth of technology stocks, dividend investing has taken a backseat over the past few months. But this phenomenon is not a new one. Data shows that since the end of 2008, US stocks with dividend yields over 5% returned about 450%, compared to a 1200% return posted by non-dividend companies. However, many analysts believe this is about to change since the era of easy money where interest rates were almost zero is nearing its end. A Wall Street Journal report recently highlighted some trends in dividend investing shared by Daniel Peris in his book “The Ownership Dividend - The Coming Paradigm Shift in the U.S. Stock Market.” Peris argues that the pendulum might shift in favor of dividend stocks since the forces behind the almost 40-year period of low interest rates and buybacks seem to have exhausted and the market could return to the typical structure in which dividends had a lot of importance.

There was a time when investing in a company automatically meant you’d get dividends from it since markets were not fixated around short-term share price movements. As Benjamin Graham once said:

"The prime purpose of a business corporation is to pay dividends regularly and, presumably, to increase the rate as time goes on."

From the 1870s to the 1950s, dividends accounted for about 80% of the total market returns, according to the WSJ report which cited economist Robert J. Shiller, Sterling Professor of Economics at Yale. This contribution to returns by dividends declined to 30% over the past decade. But could the tide really turn in the favor of dividends? Early signs are here. Meta Platforms surprised investors earlier this year when it announced a $0.50 a share dividend. Analysts believe as investor appetite for steady income and low volatility increases and markets begin to digest the possibility of the higher for longer scenario, dividend-paying stocks would see a renewed interest.

Methodology

For this article we first scanned through the list of dividend aristocrats — a group of S&P 500 stocks that have increased their dividends every year for at least 25 years. From this list we chose 11 companies with at least 50 years of consistent dividend increases and positive hedge fund sentiment. We preferred stocks with relatively low payout ratios (under 50%), wider moats and positive analyst ratings. The idea was to prefer dividend growth companies that are offering safe dividends and are deemed investment worthy by smart money managers. But why is it important to pay attention to hedge fund sentiment? Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).

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