The thesis behind selecting stocks with 25+ years of increasing dividends (like the Dividend Aristocrats) is that these businesses have a strong competitive advantage and are therefore more likely to increase dividends into the future than other dividend paying stocks with shorter histories of dividend increases.
To test whether businesses with 25+ years of consecutive dividend increases really are more likely to continue increasing dividends, I compared them to businesses that have increased their dividends for between 10 and 24 consecutive years. The chart below shows what percentage of stocks were removed from the 25+ list or the 10 to 24 list each year.
The results show that businesses with between 10 and 24 years of dividend increases are significantly more likely to freeze, reduce, or drop their dividend. Businesses that were removed from the 10 to 24 list because they were added onto the 25+ list were not counted as “falling off” the 10 to 24 list.
Investing in businesses with a long history of consecutive dividend increases gives you a higher probability of investing in businesses that will reward shareholders for the long run. Whenever possible, invest in businesses that give you the highest probability of success.