One of the main critiques of the dividend growth investing method is that the returns of DGI can’t keep up with the returns of the market. The critics say that dividend investing is not worth it because you don’t get capital appreciation like you do when you invest in growth companies. They say that you lose out on growth because the companies are paying out dividends instead of growing their business. Well, this portfolio beat the QQQ!
This narrative is completely false. There are plenty of dividend-focused companies that also offer high capital appreciation and plenty that have beaten so-called “Growth” companies, some of them by a large margin.
Just like growth companies, there are some dividend growth companies that have had amazing returns and some that have faltered, but that is the same for any company. This growth at all costs mindset of investing is not the only way.
While dividend growth investors are mainly focused on the dividends received, total return (capital appreciation + dividends) is always important. A high dividend portfolio that loses capital each year is not going to be a long term winning strategy.
This Portfolio Beat the QQQ
To highlight that dividend growth investing also can provide capital appreciation, and potentially do better than growth-only investing, I constructed the following diversified portfolio of dividend growth investments that has beaten the Invesco QQQ Trust ETF (QQQ) over the past 10 years. Not only did the entire portfolio beat the QQQ, each individual holding did as well. QQQ follows the NASDAQ-100 Index and comprises the 100 largest non-financial companies traded on the Nasdaq, and is the market benchmark for growth investing.
Before anyone protests, some disclosures: I will say that past performance is not a guarantee of future performance, this is backward looking data, and this 10 year period is a point in time and your performance might be different going forward. This portfolio is presented only to provide historical proof that dividend growth investing can provide market-beating returns and that dividend growth investors should not be disheartened by the critics who (wrongfully) say that dividend growth strategy is a losing strategy.
—-
The Portfolio
The portfolio consists of 15 quality dividend growth companies in diverse sectors, including Financials, Healthcare, Consumer Discretionary, Utilities, Consumer Defensive, Industrials, and Technology.
An equal weight portfolio has returned an average of 22.31% CAGR since January 2013, compared to the QQQ returning 16.64% over that same timeframe. Additionally, this DGI portfolio has accomplished this beat with a lower standard deviation and lower max drawdowns.
A $10,000 one-time investment into this DGI portfolio would be worth $71,241 today compared to only $44,866 in QQQ.
The current yield as of today of this portfolio is 1.85% and the 5-year dividend growth rate is 13.16% CAGR. The QQQ has a yield of 0.74% and 8.24% dividend growth rate.
—-
Individual stock returns:
Below are the individual results of each company in the portfolio over the past 10 years as compared to the results of the QQQ.
