Our investment philosophy is built on a simple conviction:
Owning high-quality companies that consistently pay and grow their dividends is one of the most effective paths to building long-term wealth.
This belief is not just an opinion; it is grounded in decades of market data and our own professional experience.
This page offers a deeper look at the research that underpins our dividend growth strategy. For those wanting a look “under the hood,” here is the quantitative case for our focus on dividends.
At its core, our strategy is designed to leverage several powerful financial mechanisms that have historically rewarded patient, long-term investors.
While large price swings capture headlines, dividends have been a crucial and underappreciated component of total stock market returns.
There is strong evidence that investing in companies with growing dividend streams offers the potential for attractive long-term returns.
Periods of market stress often make this advantage even clearer: from 2000 to 2009, while the S&P 500 produced negligible price returns, dividend-paying stocks as a group performed significantly better, providing a measure of stability in the volatile environment known as the “Lost Decade”.
An important factor of dividends is that, oftentimes, they grow from one year to the next. Many companies that pay dividends (though certainly not all) will seek to grow their dividends year-on-year.
An investment strategy focused on these growing dividends has the potential to provide consistent and increasing income, regardless of stock market performance. The dividends provide a quarterly source of cash that is immediately available to supplement your income or to assign for reinvestment. In a down market, for instance, this cash flow enables the purchasing of stocks at a better cost basis, thus enhancing potential returns over time.
If you asked us what we thought the most powerful force in finance is, we would argue for compound growth. When stocks pay a cash dividend, it enables you to reinvest that cash in more stock. By reinvesting dividends, you purchase more shares of a company; those new shares then generate their own dividends and the cycle continues.
This creates a virtuous cycle where your ownership stake and your income stream can both grow exponentially over time. It is a patient, methodical process that works to turn a linear investment into a dynamic and growing asset.
Consider this study from Ned Davis Research: they observed that $100 invested in the S&P in 1930 would have returned $5,863 by 2010 based only on price changes to the stocks. But over that same time frame, the compounded growth from reinvesting dividends would have turned that $100 into $142,045 in the same time frame.
Dividend reinvestment takes the power of compounding and helps you transform your hard-earned investments into a lifetime of returns.
For investors focused on building an income stream for the future, one of the most important metrics is yield on cost: the yield at a given point in time divided by the original purchase price.
The two forces we’ve just described—dividend growth and compounding via reinvestment—are very powerful financial mechanisms on their own. But it’s by combining dividend increases with the power of compounding that we magnify the potential returns in the long term.
As a quality company grows and increases its dividend year after year, your yield on cost can grow substantially. After a decade of consistent dividend growth, an investment initially yielding 3% might be paying you 10% or more on your original capital. This is the ultimate goal: to build a robust and growing income stream, a lifetime of returns, that supports your financial freedom.
Beyond the strategies described above, we also think the presence of dividends is a powerful heuristic for the overall strength and quality of a business. A focus on dividend growth provides several strategic benefits that align with a prudent, long-term investment philosophy.
A dividend is a real cash commitment to shareholders. A company’s ability to consistently pay and increase that dividend is often a strong indicator of its underlying financial health, disciplined management, and durable competitive advantages. This acts as a natural quality filter, guiding us toward what we believe are well-managed, resilient businesses.
Because they are often profitable, established industry leaders, dividend-paying companies can provide relative stability when investor sentiment shifts from speculative growth to proven quality. Their consistent cash flow and commitment to shareholder returns can help cushion a portfolio during market downturns.
For investors in or nearing retirement, maintaining purchasing power is a primary concern. A growing dividend stream offers a potential solution. By owning a portfolio of companies that can consistently increase their dividends, you create an income stream that has the potential to grow faster than the rate of inflation, helping to protect your lifestyle and financial security.
It is important to note that past performance is not indicative of future results, and there is no guarantee that any investment strategy will achieve its objectives.
Our focus on dividend growth is a deliberate, research-driven strategy. We believe the mechanics of compounding and the historical data point to a clear conclusion: a portfolio built around high-quality, dividend-paying companies is a powerful tool for generating income, compounding wealth, and navigating uncertain markets.
