Dividend Growth Strategy Delivers 13% Higher Returns with 27% Lower Volatility

Key Points

A widely held belief in investing is that greater returns require taking on more risk.

For instance, technology stocks tend to be more volatile, yet they have outperformed the market in recent years. Conversely, consumer staples are generally more stable but often trail overall market performance.

Historically, a straightforward approach has flipped this dynamic, delivering stronger returns while reducing risk.

Although this method may lack excitement, dividend‑growth stocks have provided consistent benefits to investors over the past half‑century.

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Dividend‑Growing Stocks Have Outperformed with Lower Volatility

A Ned Davis Research study of S&P 500 companies from 1973 through 2025 showed that firms that increased or started dividends earned an average of 13 % per year—about 13 percentage points above the 11.5 % return of stocks that did not pay dividends.

Dividend policy also distinguished other groups: companies that kept their payout unchanged earned roughly 11.1 % annually, whereas those that reduced or eliminated dividends achieved only about 9.5 % per year.

The explanation is straightforward: balance‑sheet strength. Firms raising dividends typically generate ample cash flow to support those payments, while companies cutting dividends often face financial strain, which reflects in their share prices.

Notably, these superior returns were achieved without assuming extra risk.

The research also revealed that dividend growers carried a historical beta of 0.94 versus 1.11 for non‑dividend payers—a 15 % reduction. Similarly, the standard deviation of returns showed dividend growers experienced roughly 27 % lower volatility.

Three Leading Dividend‑Growth ETFs

1. iShares Core Dividend Growth ETF

The iShares Core Dividend Growth ETF (NYSEMKT: DGRO) applies a relatively lenient dividend‑growth screen, requiring at least five straight years of rising payouts and a payout ratio below 75 %. The latter condition helps ensure the growth is sustainable.

2. Vanguard Dividend Appreciation ETF

The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) imposes a stricter 10‑year dividend‑growth rule and excludes the top 25 % of highest‑yielding eligible stocks, which helps mitigate the risk of yield traps hurting returns.

3. ProShares S&P 500 Dividend Aristocrats® ETF

The ProShares S&P 500 Dividend Aristocrats® ETF (NYSEMKT: NOBL) mandates a 25‑year history of dividend increases, making it the most defensive option in the group owing to the long‑term stability and maturity of its holdings.

Dividend‑growth stocks may not lead in every market setting, but the data show that holding them long term can enhance a portfolio’s risk‑return profile. Investing in quality firms that consistently reward shareholders offers a useful approach for virtually any investment strategy.

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