Guide · AI-assisted15 okt. 20262 min read
Dividend growth vs high yield: which income lasts
Companies that raise their dividends have historically done better than the highest yielders. Why yield alone is a weak guide and what to check instead.
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This guide was drafted with AI from the published research listed under Sources; it has not yet been reviewed by a named human editor.
Key points
- From 1973 to 2025, S&P 500 companies that grew or started dividends returned about 10.3 % a year; those that cut or eliminated them returned about −1 %.
- The edge comes mostly from quality: dividend growers tend to be profitable, disciplined businesses.
- The very highest yields often mean the market expects a cut; payout ratios above 100 % are common there.
- Check coverage by earnings and free cash flow, debt and cut history before looking at the yield.
What the long record shows
Ned Davis Research data published by Hartford Funds split S&P 500 companies by dividend policy. From February 1973 to September 2025, dividend growers and initiators returned 10.27 % a year with 16.3 % volatility; all payers 9.25 %; companies that kept their dividend unchanged 6.87 %; non-payers 4.26 %; and companies that cut or eliminated their dividend −0.96 % a year with 24.9 % volatility.
The S&P 500 Dividend Aristocrats, index members that raised their dividend for at least 25 years in a row, also beat the index between 1990 and 2016 with lower volatility. Factor studies attribute most of this to quality: a long record of rising dividends is evidence of a profitable, well-run business, not a source of return in itself.
Why the highest yield is a warning
A yield rises when the price falls, so a very high yield often means investors expect the dividend to be cut. In one study of Canadian stocks, the highest-yielding tenth paid out a median of 124 % of earnings, against about 85 % for the next groups, and the lower-yield group did better. Long-run evidence on top-yield portfolios is mixed at best.
Yield screens also concentrate risk. They fill up with utilities, energy, financials and real estate, so a high-income portfolio can quietly become a bet on a few sectors and on interest rates.
What to check instead
These are the items behind our 0–100 Dividend Safety score, and the reason a stock with a covered, growing 4 % dividend often ranks above one yielding 9 %.
- Payout on normalised earnings and on free cash flow: below roughly 70–80 % leaves room for bad years.
- Debt: net debt above about four times EBITDA makes the dividend fragile.
- History: years of increases and no cuts through recessions.
- Growth: dividends not growing faster than earnings over five years.
- Verification: amounts and dates confirmed by more than one source.
How to use it
For income, a core of dividend growers with Dividend Safety of 60 or more has historically been sturdier than a portfolio built by yield. Higher yields can still have a place, but size them as the riskier part. And remember that a dividend is not extra return: the share price drops by the amount paid (see the guide on total return). Taxes matter as well: depending on where you live, dividends can be taxed more heavily than gains.
Sources
- Hartford Funds / Ned Davis Research: The Power of Dividends (returns by dividend policy, 1973–2025)
- S&P Dow Jones Indices: S&P Dividend Aristocrats methodology
- O'Shaughnessy Asset Management: Dividend yield vs dividend growth
- Advisor.ca: When high yields are too good to be true
Educational content, not investment advice. Figures describe published research and past data; they are not promises or recommendations.