What is a Dividend Growth Stock

A dividend is the portion of the money a company earns that it distributes to shareholders. But a dividend growth stock is not simply a company that 'pays' a dividend—it is a company that has 'raised' its dividend every year.

The key is not 'is the dividend large now' but 'does it have the strength to keep raising it going forward.' So dividend growth investing is less about chasing the stocks with the highest dividend yield, and closer to a strategy of selecting solid companies whose revenue and profit have grown over a long time.

For example, if a company paid a dividend of 1,500 won per share five years ago and now pays 2,430 won, the dividend has grown by about 10% per year. This speed at which the dividend grows is called the 'dividend growth rate.'

Depending on how long they've raised dividends, they get nicknames.

① Dividend Aristocrats: an index of companies among the U.S. S&P 500 that have raised their dividends for '25 consecutive years.' This index was created in May 2005 and, as of 2026, contains about 69 companies. If a company fails to raise its dividend even one year or is dropped from the S&P 500, it is removed from the list.

② Dividend Kings: rarer companies that have raised their dividends for a full '50 consecutive years.'

Twenty-five or fifty years spans the oil shocks, the dot-com bubble, the 2008 financial crisis, and COVID. That such companies never once cut their dividend but raised it over that long stretch is read as evidence that their profits were consistently steady.

A dataset from the U.S. asset manager Hartford Funds, using Ned Davis Research data to analyze 1973 through 2025, is frequently cited.

Over this period, companies that 'raised or newly initiated' dividends returned about 10.2% per year on average, while companies that paid no dividend at all averaged only about 4.2% per year. Moreover, the dividend-growth companies had less price swing (lower volatility).

Their defensive strength stood out in down markets too. According to S&P Dow Jones Indices, during the 2008 financial crisis the Dividend Aristocrats index fell about -22%, while the whole S&P 500 fell about -38%. Dividend growth stocks didn't 'avoid' the crash, but their drawdown was relatively smaller.

You can get a better feel for this flow by directly comparing lump-sum investing, recurring investing, and crisis periods on our site.

Dividend growth stocks have clear weaknesses too. For educational purposes, let's point them out without hiding.

First, the last 10 years actually lagged. Based on S&P Dow Jones data, over the past decade Dividend Aristocrats returned about 10.1% per year while the whole S&P 500 returned about 15.3% per year. Dividend Aristocrats have a low IT weight (about 3%) and are concentrated in consumer staples and industrials, so they relatively underperformed in the bull market driven up by AI and tech stocks.

Second, a dividend is not a 'promise.' If a company pays too much dividend relative to profit (a payout ratio over 80%) for a long time, a 'dividend cut'—reducing or stopping the dividend—can come when earnings wobble. A payout ratio of about 40–60% is generally considered relatively healthy.

Third, foreign dividends carry taxes and exchange rates. U.S. stock dividends are usually withheld at 15%, and the actual won amount you end up with varies with the won-dollar exchange rate when you receive it. This means the stated dividend yield and the amount that lands in your account can differ.