How dividend growth can boost a high yield strategy

Last week I did some backtesting to find out whether a high dividend yield strategy could be improved using Stockopedia’s StockRanks. What this discovered was a 25 stock portfolio that notched up 1-year capital growth of 11% and an overall yield return of about 5%. While that 16% return was pleasing, there are other approaches to dividend investing that might help to improve those results. One of them is to look at whether a long, unbroken record of dividend growth has any further impact on the StockRanks + Yield strategy returns.

Philip Fisher, the late American growth stock investor, once said that regularity and dependability are the most important but least discussed aspects of dividends. In his book, Common Stocks and Uncommon Profits, Fisher wrote: “The managements whose dividend policies win the widest approval among discerning investors are those who hold that a dividend should be raised with the greatest caution and only when there is great probability that it can be maintained.”

Fisher’s 1958 book followed the publication of an influential research paper into dividends by Harvard finance professor John Lintner. Lintner's study - and others since - found that many company executives believe the...