When it comes to dividend investing, not all stocks are created equal. Trivariate Research, led by founder Adam Parker, has identified a unique "winning formula" that focuses on large-cap stocks demonstrating consistent dividend growth. Parker highlights that dividends represent a resilient return factor for equities, pointing to an "investable universe" of 479 stocks that have consistently outperformed the top 700 equities over both 5-year and 25-year periods.
Stocks meeting Trivariate's criteria possess a market capitalization of at least $10 billion and a dividend yield that is either above 10 basis points and increasing, or simply greater than 50 basis points. The median stock within this select group boasts an impressive 5% annual dividend growth rate, according to the firm's findings.
Delving deeper, Parker's research indicates that companies in the two lowest payout ratio quintiles have delivered superior performance over the last five years. He emphasizes that dividend increases are particularly effective for companies characterized by high cash reserves and attractive valuations. "Stocks with cash to market cap. above 25% and net cash to market cap. above 10% that increase their dividend massively outperform stocks that have less cash," Parker explained.
Furthermore, the analysis showed that cheaper companies—defined as those with a price-to-forward earnings multiple below 10—that boost their payouts significantly outperformed more expensive counterparts also increasing dividends. Finally, companies with lower payout ratios that announce dividend hikes tend to "strongly outperform" their industry peers following such announcements.
Based on this rigorous methodology, Parker identified several stock ideas with low payout ratios that have recently increased their dividends. Synchrony Financial (SYF), with a 1.58% dividend yield, announced a 13% payout raise in April. CFO Brian Wenzel linked this, along with a new $6.5 billion share repurchase program, to confidence in the company's future value creation. Despite beating Q1 earnings expectations, Synchrony's revenue fell short, and the stock is down almost 11% year-to-date.
Travelers (TRV), an insurance giant, has seen its stock climb 4% year-to-date. The company, yielding 1.64%, recently declared a 14% increase in its quarterly dividend, marking its 22nd consecutive year of increases. CEO Alan Schnitzer attributed the consistent performance to strong capabilities and a focus on shareholder value, following better-than-expected Q1 revenue and core EPS.
Chubb (CB), another insurance firm, also surpassed expectations last month, although its stock dipped due to investor concerns over a softening property insurance market. Chubb, with a 1.19% dividend yield, announced its 33rd consecutive annual dividend increase in February. The stock is up approximately 4% year-to-date, demonstrating long-term commitment to shareholder returns.
