Dividend Growth

Dividend Growth: The Power of Rising Payouts

A company that increases its dividend year after year is signalling confidence in its future earnings. For long-term investors, dividend growth can be even more important than the current yield.

Why Dividend Growth Matters

Consider two stocks:

• Stock A — Pays a 7% yield today but has not increased its dividend in 5 years.
• Stock B — Pays a 4% yield today but has been growing its dividend by 10% per year.

After 5 years, Stock B's dividend per share will have nearly doubled, and your yield on the original purchase price (called "yield on cost") will be over 6%. After 10 years, it could exceed 10%. Stock A still pays the same amount.

Tracking DPS Growth on the NSE

Dividends Per Share (DPS) growth is a key metric to track. Look at the dividend history over 5 to 10 years:

• Steady increases — Companies that raise their DPS regularly demonstrate consistent earnings growth and shareholder-friendly management.
• Flat dividends — Not necessarily bad, but it means the company is not growing its shareholder distributions.
• Volatile dividends — Large swings in DPS suggest unpredictable earnings, making the company a less reliable income source.
• Dividend cuts — A dividend reduction is often a sign of financial stress and typically causes the share price to drop.

Consistent Payers on the NSE

Several NSE-listed companies have established track records of consistent or growing dividend payments. Banks like Equity Group, KCB, and Co-op Bank have generally maintained and grown dividends in line with their earnings growth. Consumer companies like EABL and BAT have also been reliable payers, supported by their steady consumer demand.

The best dividend investments are not always the ones with the highest yield today, but the ones that will grow their dividends consistently over the coming years.