DAC Insights: Investing Beyond Dividend Growth

OVERVIEW

• There has been no shortage of discussion—and for good reason—about the critical role stock dividends play, both as a direct source of income and as a powerful engine of total return.
  
• Today, equity valuations are elevated, U.S. market leadership is increasingly concentrated, and the pace of technological innovation is, at times, outstripping earnings growth. (On January 30, 2026, the forward PE of the S&P 500 was 22x, and Mag 7 stocks comprised about 35% of the Index.)
  
• As a result, now is an opportune time to reassess the role that quality and dependability play when identifying companies with the potential to outperform over the long term.

DIVIDEND GROWTH: THE FOUNDATION IS LAID

Dividends have been a major contributor to equity returns—accounting for about 38% of annualized returns for the S&P 500 since 1930 (and just under 18% during the 2010s). When compounding is factored in, this already sizable impact is amplified even further.

Dividends Are a Large Component of Total Return S&P 500 Annualized Total Return Since 1930: 10.1%

In the 1930s, economist John Burr Williams, an early champion of fundamental analysis, demonstrated that a stock’s intrinsic value is the present value of its future cash flows—specifically, its future dividends. His insights and research remain a relevant foundation for dividend investing today. Building on that foundation, though, reveals two important additional observations:

• First, companies that consistently grow their dividends have tended to outperform the broader market by a significant margin, suggesting that their relative strength reflects factors beyond their dividend growth alone.
• Second, companies that have consistently grown their dividends over long periods of time have delivered strong financial results and demonstrated superior market returns.

Dividend Growers Have Outperformed Significantly
S&P 500 Total Returns by Dividend Policy Since 1973, Indexed to 100 (Log Scale)

Portfolio Performance

	Gain per Year (Annualized %)	Growth of $100
Dividend Growers and Initiators	10.2	$17,375
All Dividend Payers	9.2	$10,634
S\&P 500 Total Return (Geometric Equal-Weighted)	7.8	$5,212
Dividend Payers (No Change in Dividend)	6.9	$3,375
Non-Dividend Payers	4.2	$888
Dividend Cutters and Eliminators	-1.0	$60

Source: S&P Dow Jones, Ned Davis. Data from 2/1/1973-12/31/2025. Returns based on monthly equal-weighted geometric average returns of S&P 500 component stocks with components reconstituted monthly.

BUILDING ON THE FOUNDATION: 3 KEYS TO SUCCESSFUL DIVIDEND INVESTING

This naturally raises a key question for investors. Since past performance, by definition, is backward-looking and may not necessarily be indicative of future results, how can portfolios be positioned today in order to capture the dividend-driven investment opportunities of the future? At DAC, our more than 20 years of successful dividend investing have been driven by three core principles:

1. Screen Rigorously and Consistently
   At DAC, we refer to this as our “3D” Dividend Growth investment philosophy. It evaluates key financial metrics holistically, continuously, and from multiple perspectives. This approach is the foundation of our active ETF, DVGR, launched December 2025.
   
   
   • Dividend Growth: We begin by identifying companies that have grown their dividends over time. Applied consistently and prudently, screens are highly beneficial. We believe the data on dividend growers validates this.
   • By Double Digits: Supported by other solid financial metrics, these same companies must have consistently increased their dividends, on average, by at least 10% per year—with no cuts or years without a dividend increase. Some strategies consider companies or sectors with the highest dividends as outliers and automatically screen them out. In contrast, we view these as potentially important investment opportunities that warrant further analysis.
   • For a Decade, or More: Many companies can sustain dividend increases for a limited time, often at the expense of business reinvestment or a deteriorating balance sheet. However, our extended growth timeline separates the “fakers” from the “makers,” balancing recency with our longer-term investment horizon. In fact, many of the companies in our proprietary investment universe have sustained double-digit growth for decades.
     
2. Combine Screens with Fundamental Analysis
   Importantly, dividend growth must be supported by healthy cash flows, strong balance sheets, and management’s commitment to returning capital to shareholders. Here, screens alone are not enough. We consider it essential to integrate our disciplined screening process with years of fundamental research and portfolio management experience. We believe this combination of quantitative and fundamental analysis, with a prudent approach to portfolio and risk management, is the best way to deliver consistent, long-term investment results across all market cycles.
   
3. Continually Monitor and Assess
   An essential part of our investment process is to continually evaluate the companies in our investment portfolios. This regular review assesses whether a company’s financial health, competitive position, and strategic direction remain aligned with our original investment thesis. Businesses evolve over time, and shifts in management focus, competitive environment, earnings performance, or balance sheet strength can materially affect a company’s long-term intrinsic value. This is the area in which we spend the most time.
   
   Ongoing monitoring also ensures risks and opportunities are identified early. Knowing our investment companies well also supports disciplined decision-making and helps us stay focused on our long-term investment objectives. It also reinforces accountability, reduces emotional responses to short-term market fluctuations, and ensures that our portfolio holdings consistently reflect the most recent market information.

TESTED FOR DECADES, POSITIONED FOR TODAY’S OPPORTUNITIES

For more than 20 years, DAC has been investing according to these same core principles. With markets volatile and inflation stubborn, we believe our disciplined and balanced approach is especially valuable for capitalizing on today’s most compelling market opportunities.

Whether for wealthy families looking for a growing income stream or for individual investors looking to fund a successful retirement, an integrated approach to dividend growth investing can deliver several important benefits. Talk to us to learn more about our 3D investment strategies and why “dividends are in our DNA.”