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Summary

  • Higher dividend compound annual growth rate (CAGR) does not always lead to higher final-year income.
  • Higher dividend CAGR does not always lead to higher cumulative income.
  • Lower-dividend-CAGR companies can sometimes produce more income than higher-dividend-CAGR companies.

Company 1 has a dividend compound annual growth rate [CAGR] of 50%. Company 2 has a dividend CAGR of 10%. After an interval of several years, will Company 1 always pay you more dividend income (both in the final year, and cumulative over the entire interval) than Company 2?

The answer surprised me.

I chose the interval between 1/1/2001 and 12/31/2013. This was not "cherry-picking." I did not investigate several intervals, only to choose this one because I liked its results best. I chose this interval because when I launch FAST Graphs, that appears to be the default interval. I acknowledge that different intervals might lead to different conclusions.

I chose to compare the 6 companies with the highest dividend CAGR over that interval (ABC, AET, CBRL, FAST, UNH, WM) with 2 "stodgy," "boring," blue-chip companies (JNJ, PG). I acknowledge that different companies might lead to different conclusions.

Should I consider special dividends? Some investors might, others might not. I collected data both with and without counting special dividends. FAST paid 3 ($0.135 on 12/15/08, $0.21 on 12/6/10, and $0.50 on 12/21/12), PG paid 1 ($0.345 on 6/3/02), and WM paid 1 ($0.0494 on 11/15/05).

Should I consider reinvested dividends? Some investors might, others might not. I collected data both with and without counting reinvested dividends. I used historical price data from Yahoo Finance. I reinvested dividends on the same day, if possible, or on the next day on which the market was open. (JNJ paid a dividend on 9/11/01, but the market was closed that day and for the next 6 days.) I ignored any dividend reinvestment fee, as most brokers will automatically reinvest dividends for free.

Should I consider taxes? I chose not to, because some investors use taxable accounts, others use tax-sheltered accounts, and all are in different tax brackets.

Here are the results sorted by company ticker:

Results sorted by company ticker
TickerCAGRIsCountingSpecialCashIsReinvestingIncomeForFinalYearIncomeFromStartDate
ABC50.809nono$777.18$2,654.99
ABC50.809noyes$846.25$2,811.18
ABC50.809yesno$777.18$2,654.99
ABC50.809yesyes$846.25$2,811.18
AET44.076nono$828.16$2,287.78
AET44.076noyes$866.11$2,354.74
AET44.076yesno$828.16$2,287.78
AET44.076yesyes$866.11$2,354.74
CBRL49.535nono$1,733.70$6,525.66
CBRL49.535noyes$2,148.85$7,511.93
CBRL49.535yesno$1,733.70$6,525.66
CBRL49.535yesyes$2,148.85$7,511.93
FAST42.669nono$1,405.98$6,979.35
FAST42.669noyes$1,641.87$7,740.76
FAST42.669yesno$1,405.98$8,464.41
FAST42.669yesyes$1,688.98$9,558.03
JNJ11.519nono$695.68$5,624.50
JNJ11.519noyes$1,013.71$7,019.18
JNJ11.519yesno$695.68$5,624.50
JNJ11.519yesyes$1,013.71$7,019.18
PG10.297nono$857.74$6,818.48
PG10.297noyes$1,231.58$8,493.55
PG10.297yesno$857.74$6,943.53
PG10.297yesyes$1,244.65$8,709.51
UNH50.984nono$734.99$2,124.65
UNH50.984noyes$774.61$2,198.62
UNH50.984yesno$734.99$2,124.65
UNH50.984yesyes$774.61$2,198.62
WM51.483nono$748.72$5,723.08
WM51.483noyes$1,091.91$7,130.81
WM51.483yesno$748.72$5,748.41
WM51.483yesyes$1,094.30$7,171.90

Here are the results sorted by dividend CAGR:

Results sorted by dividend CAGR
TickerCAGRIsCountingSpecialCashIsReinvestingIncomeForFinalYearIncomeFromStartDate
WM51.483nono$748.72$5,723.08
WM51.483noyes$1,091.91$7,130.81
WM51.483yesno$748.72$5,748.41
WM51.483yesyes$1,094.30$7,171.90
UNH50.984nono$734.99$2,124.65
UNH50.984noyes$774.61$2,198.62
UNH50.984yesno$734.99$2,124.65
UNH50.984yesyes$774.61$2,198.62
ABC50.809nono$777.18$2,654.99
ABC50.809noyes$846.25$2,811.18
ABC50.809yesno$777.18$2,654.99
ABC50.809yesyes$846.25$2,811.18
CBRL49.535nono$1,733.70$6,525.66
CBRL49.535noyes$2,148.85$7,511.93
CBRL49.535yesno$1,733.70$6,525.66
CBRL49.535yesyes$2,148.85$7,511.93
AET44.076nono$828.16$2,287.78
AET44.076noyes$866.11$2,354.74
AET44.076yesno$828.16$2,287.78
AET44.076yesyes$866.11$2,354.74
FAST42.669nono$1,405.98$6,979.35
FAST42.669noyes$1,641.87$7,740.76
FAST42.669yesno$1,405.98$8,464.41
FAST42.669yesyes$1,688.98$9,558.03
JNJ11.519nono$695.68$5,624.50
JNJ11.519noyes$1,013.71$7,019.18
JNJ11.519yesno$695.68$5,624.50
JNJ11.519yesyes$1,013.71$7,019.18
PG10.297nono$857.74$6,818.48
PG10.297noyes$1,231.58$8,493.55
PG10.297yesno$857.74$6,943.53
PG10.297yesyes$1,244.65$8,709.51

Here are the results sorted by dividend income in the final year:

Results sorted by IncomeForFinalYear
TickerCAGRIsCountingSpecialCashIsReinvestingIncomeForFinalYearIncomeFromStartDate
CBRL49.535noyes$2,148.85$7,511.93
CBRL49.535yesyes$2,148.85$7,511.93
CBRL49.535nono$1,733.70$6,525.66
CBRL49.535yesno$1,733.70$6,525.66
FAST42.669yesyes$1,688.98$9,558.03
FAST42.669noyes$1,641.87$7,740.76
FAST42.669nono$1,405.98$6,979.35
FAST42.669yesno$1,405.98$8,464.41
PG10.297yesyes$1,244.65$8,709.51
PG10.297noyes$1,231.58$8,493.55
WM51.483yesyes$1,094.30$7,171.90
WM51.483noyes$1,091.91$7,130.81
JNJ11.519noyes$1,013.71$7,019.18
JNJ11.519yesyes$1,013.71$7,019.18
AET44.076noyes$866.11$2,354.74
AET44.076yesyes$866.11$2,354.74
PG10.297nono$857.74$6,818.48
PG10.297yesno$857.74$6,943.53
ABC50.809noyes$846.25$2,811.18
ABC50.809yesyes$846.25$2,811.18
AET44.076nono$828.16$2,287.78
AET44.076yesno$828.16$2,287.78
ABC50.809nono$777.18$2,654.99
ABC50.809yesno$777.18$2,654.99
UNH50.984noyes$774.61$2,198.62
UNH50.984yesyes$774.61$2,198.62
WM51.483nono$748.72$5,723.08
WM51.483yesno$748.72$5,748.41
UNH50.984nono$734.99$2,124.65
UNH50.984yesno$734.99$2,124.65
JNJ11.519nono$695.68$5,624.50
JNJ11.519yesno$695.68$5,624.50

CBRL (3rd highest dividend CAGR) comes in first place, FAST (6th highest dividend CAGR) comes in second place, and PG (8th highest dividend CAGR, with dividend reinvestment) and JNJ (7th highest dividend CAGR, with dividend reinvestment) beat the other 4 higher-dividend-CAGR companies (except for WM, 1st highest dividend CAGR, with dividend reinvestment).

I interpret this to mean that a company with a higher dividend CAGR does not always pay more dividend income in the final year than a company with a lower dividend CAGR.

Here are the results sorted first by whether or not special dividends were considered, and second by dividend income cumulative over the entire interval:

Results sorted by IsCountingSpecialCash then by IncomeFromStartDate
TickerCAGRIsCountingSpecialCashIsReinvestingIncomeForFinalYearIncomeFromStartDate
PG10.297noyes$1,231.58$8,493.55
FAST42.669noyes$1,641.87$7,740.76
CBRL49.535noyes$2,148.85$7,511.93
WM51.483noyes$1,091.91$7,130.81
JNJ11.519noyes$1,013.71$7,019.18
FAST42.669nono$1,405.98$6,979.35
PG10.297nono$857.74$6,818.48
CBRL49.535nono$1,733.70$6,525.66
WM51.483nono$748.72$5,723.08
JNJ11.519nono$695.68$5,624.50
ABC50.809noyes$846.25$2,811.18
ABC50.809nono$777.18$2,654.99
AET44.076noyes$866.11$2,354.74
AET44.076nono$828.16$2,287.78
UNH50.984noyes$774.61$2,198.62
UNH50.984nono$734.99$2,124.65
FAST42.669yesyes$1,688.98$9,558.03
PG10.297yesyes$1,244.65$8,709.51
FAST42.669yesno$1,405.98$8,464.41
CBRL49.535yesyes$2,148.85$7,511.93
WM51.483yesyes$1,094.30$7,171.90
JNJ11.519yesyes$1,013.71$7,019.18
PG10.297yesno$857.74$6,943.53
CBRL49.535yesno$1,733.70$6,525.66
WM51.483yesno$748.72$5,748.41
JNJ11.519yesno$695.68$5,624.50
ABC50.809yesyes$846.25$2,811.18
ABC50.809yesno$777.18$2,654.99
AET44.076yesyes$866.11$2,354.74
AET44.076yesno$828.16$2,287.78
UNH50.984yesyes$774.61$2,198.62
UNH50.984yesno$734.99$2,124.65

Ignoring special dividends, PG (8th highest dividend CAGR) beat all the higher-dividend-CAGR companies. Considering special dividends, FAST (6th highest dividend CAGR) beat PG.

I interpret this to mean that a company with a higher dividend CAGR does not always pay more cumulative dividend income than a company with a lower dividend CAGR.

Please note that the data are real. They do not come from a simulation. I acknowledge that "past performance does not guarantee future results." However, as Mark Twain says, "History doesn't repeat itself, but it does rhyme."

Conclusion

I did not collect enough data about enough companies, over enough intervals, to draw statistically significant conclusions.

My data convince me that I should not simply purchase today the companies that have the highest dividend CAGRs, as there is insufficient evidence that they will result in more dividend income (either in the final year, or cumulative over the entire interval, or both).

Disclosure: The author is long JNJ, PG. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Does Higher Dividend Growth Lead To Higher Dividend Income?