A company’s dividend growth rate can be an excellent sign of financial health and stability because any company that consistently increases its dividend payouts over long periods proves it can make money regardless of economic conditions (and we all know just how susceptible stocks are to massive economic changes). Dividend growth rates (along with dividend rates and yields) can be deciding factors for income investors looking for their next purchase.
However, statistics, percentages, and any type of number don’t exist in a vacuum; they need context. When considering statistics, one must consider correlation vs causation. Indeed, Mark Twain once said, “There are lies, damned lies, and statistics.”
In a year with unusually hot summers, one might expect ice cube sales to soar 40-50%. At the same time, forest fires rage. However, higher ice cube sales aren't the cause of forest fires.
This may seem silly, but it shows this fallacy is always around us.
Misunderstanding statistics can lead to compromised decision-making, false conclusions, poor risk management, and missed opportunities.
This brings me back to dividend growth rates, specifically how some companies can register dividend percentage growth in the thousands over the trailing 5-year period.
So, let’s examine three companies with the craziest dividend growth rates, try to understand how these numbers came to be, and if they deserve a place in your portfolio.
Radian Group Inc (RDN)
Radian Group offers mortgage insurance and diversified financing services in the real estate industry. While that company description doesn’t sound as sexy as, say, “leading provider of AI hardware solutions,” the mortgage insurance space is often considered a safe albeit slow-growing industry—so long as we’re not in a financial crisis. Indeed, it’s a section that can serve as a safe harbor for defensive investors. So, it’s understandable if we expect modest dividend growth for a company in the insurance industry.
But that’s not the case for RDN, which currently has an 8,900% 5-year dividend growth rate.
Why Is It So High?
A quick dive into Radian’s dividend payout history shows they paid a paltry $0.01 a share (annually) from 2007 through 2021. But that’s when things started to get fun for investors.
The massive growth rate started in 2021 when the company increased its annual dividends from $0.01 to $0.50.
Before that, RDN paid out $0.08 or more yearly. If I could hazard a guess, I’d say that that minor incident involving the housing and financial market back in 2008 has something to do with this dramatic decrease.
Global financial crises aside, this return to the status quo for RDN’s dividend payments might indicate a brighter future for the company. FY’23 saw modest revenue growth of 4%, although ROE was 14.5%, slightly lower than last year.
Another good point to report is that since 2020, the company has been consistent with its dividend payments, with the latest annual rate at $0.98 or a 3.09% forward yield. Additionally, the stock has gained ground over the last five years, with a 5-year return of 56.06%. Couple that with a relatively low 22.62% payout ratio, and RDN might just be another great dividend stock.
The Cigna Group (CI)
The Cigna Group offers a diversified portfolio of products and services that cover almost the entire range of the healthcare system. The company operates globally and provides services to both private and government clients.
CI has a 5-year dividend growth rate of 12,200%, pays an annual dividend of $5.09, or 1.48%, and a pleasantly low 23.42% payout ratio.
Why Is It So High?
CI’s dividend growth spike can be traced back to 2021 when the company went from paying $0.04 per year to $1.00 per quarter. And it’s been consistent with it, too, as dividends have increased yearly since then.
The increased dividend is not the only notable growth on display. CI’s last four EPS reports managed to grow QoQ and exceed analyst estimates. Meanwhile, the company’s total revenues for Q4’23 saw a 12% increase YoY. On top of that, the stock is up 109.96% over the last 5-years. Oh, and one more thing: of all three companies on this list, only CI has a “Strong Buy” recommendation from analysts.
This combination of consistent dividends, analyst ratings, and improving business might make CI a great dividend stock for some investors.
Orient Overseas International Ltd (OROVY)
Orient Overseas International is a holding company focused on logistics and container transportation. The company owns subsidiaries along major trading lanes in the Pacific and Atlantic Oceans, covering Asia, Europe, and Australia.
As of today, OROVY has an insane 51,455.55% 5-year dividend growth, making it the highest on this list. Not only that, the company paid $27.00 in dividends (2023) or 33.06 annualized. Frankly, hearing just these numbers—without any sort of context—would have left me drooling at the prospect of earning more than 30% of my capital from annual dividends alone.
So, why am I not rushing to buy all the OROVY stocks I can get my hands on?
Why Is OROVY's Dividend So High?
Research is an investor’s best friend. In this case, a quick glance at OROVY’s dividend history immediately told me that the company's dividends were all over the map.
How inconsistent, you ask? Well, the history indicates that the company has paid these amounts over the last five years:
- 2019: $0.63 (2 payouts)
- 2020: $9.50 (4 payouts)
- 2021: $42.14 (4 payouts)
- 2022: $46.45 (4 payouts)
- 2023: $27 (2 payouts)
- 2024: None so far.
That explains the 50,000%+ increase. (Quick side note: the company didn’t pay dividends in 2018.)
While a 30+% yield might be enough for some investors to jump into OROVY, others might want to look at other factors, like volume and liquidity. Case in point: the company has only breached 10,000 daily traded shares a handful of times over the last year, and its price has fluctuated from over $100 to just around $80, making its chart look like very choppy waters.
The bottom line is that you might think that getting $27 dividends is good, at least until the stock price plummets and you have no one to sell your shares to. It doesn’t help that dividends show signs of massive fluctuations, meaning you might get $27 this year but then receive less than a dollar or maybe even nothing the next.
Final Thoughts
If there’s any lesson to be learned here, single metrics, percentages, or values are not enough to classify a dividend stock—or any stock for that matter—as an immediate buy. Always do your due diligence, utilize multiple sources, and look closer into the numbers before making decisions that can have financial implications.
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