The Dividend Driver: Return On Equity

Summary

• A key driver of long-term compound returns is dividend growth, which is driven by corporate profitability.
• Using over 50 years of data, a strategy that identified the top 20% of stocks by profitability posted annual returns of 11.73%, outperforming the lowest ROE group by 451 basis points per year.
• Profitable companies with excellent margins and efficient assets have the potential for faster dividend growth rates in the future.

Richard Drury

By Jeff Weniger

A key driver of long-term compound returns is dividend growth. But what drives the driver? Corporate profitability.

Using over a half-century of data from Ken French’s computations at Dartmouth, a strategy that identified the top