What’s Better Than Dividends? Growing Dividends

July 8, 2021


By: Michael O’Connor

Dividends are payments that companies typically make to shareholders at regular intervals, usually quarterly. They signal the financial health of a company and are a strong force in generating investor returns and income.

Dividends paid by the companies in the S&P 500 have grown by an annualized rate of 10% since 2010. Investors looking for a growing source of income should consider stocks. However, for companies to grow their dividend payouts to investors, they need to be profitable enough to generate cash flow.

S&P 500 dividend per share has grown by over 100% during the last 10 years

Source: Bloomberg Finance L.P., data as of 12/31/2020. Past performance does not guarantee future results.

S&P 500 Dividend Paying Stocks With Higher Dividend Growth Performed Best

A company’s financial health is inextricably linked to its stock performance, so if the ability to pay and grow dividends is an indication of health, the companies growing their dividends the fastest should outperform, all things equal. The question is, by how much? Looking at just the dividend-paying stocks in the S&P 500, those ranking in the 1st quartile of 5-year annualized dividend growth outperformed those in the 4th quartile, on average, by an annualized rate of almost 12%. Investors evaluating equity income strategies may want to consider those focused on dividend growth like the O’Shares U.S. Quality Dividend ETF (OUSA).

Performance of Dividend Growth Stocks:

Stronger Dividend Growth = Stronger Performance?

Source: Bloomberg Finance L.P., data as of 3/31/2021. Dividend Paying Stocks: S&P 500 Dividend Paying Stocks. Names in bubbles are examples of stocks in each quartile. Past performance does not guarantee future results.

For top ten holdings of the OUSA ETF click here.

OUSA: More Growth, Less Cuts?

Equity income investors are probably concerned about 2 things: Is my income safe, and will my income grow? Though nothing is guaranteed in life there may be clues in company profitability and balance sheet metrics. The quality approach embedded in the OUSA strategy emphasizes return on assets (ROA) for profitability and leverage (net debt to earnings before interest, taxes, depreciation and amortization). It may reduce the risk of dividend cuts and suspensions while supporting future dividend growth.

Dividend Death Watch More Dividend Growth Stocks in OUSA

Source: Source: Bloomberg Finance L.P. Data as of 3/31/2021. Value: Russell 1000 Value Index. Past performance does not guarantee future results.

A quality approach to dividend investing may provide investors with a growing source of income and lower-risk equity exposure than traditional value and market capitalization weighted strategies. Investors can get more research on dividend investing from O’Shares exchange-traded funds (ETFs) here. Advisers who would like to request additional portfolio details with fundamental metrics may contact O’Shares ETFs directly.


EBITDA: Earnings before interest, taxes, depreciation and amortization, is a measure of a company’s overall financial performance and is used as an alternative to net income.

S&P 500: Represented by S&P 500 Index. The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. The referenced index is shown for general market comparisons and is not meant to represent the O’Shares Funds. Investors cannot directly invest in an index.

1st Quartile: Contains the top 25% of companies in the S&P 500 based on average 5-year annualized dividend growth.

2nd Quartile: Contains the top 25%-50% of companies in the S&P 500 based on average 5-year annualized dividend growth.

3rd Quartile: Contains the top 50%-75% of companies in the S&P 500 based on average 5-year annualized dividend growth.

4th Quartile: Contains the bottom 25% of companies in the S&P 500 based on average 5-year annualized dividend growth.

– This sponsored content was created by O’Shares ETFs –

Shares of the Funds are not individually redeemable and the owners of Shares may purchase or redeem Shares from each Fund in Creation Units only. The purchase and sale price of individual Shares trading on an Exchange may be below, at or above the most recently calculated NAV for such Shares.

Market Price returns are generally based on market value at 4:00 PM Eastern time (when NAV is normally determined), and do not represent the returns you would receive if you traded shares at other times. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV.

Holdings are subject to change and should not be considered investment advice.

For the most recent standard performance of the Fund, click OUSA Fund Page.

Download the Research Paper: Dividend Watch: Equity Income Trends & Strategies

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