The importance of increasing dividends to me is simply to increase my annual income year after year. Increasing the dividend is important to companies because if done for a number of years it puts the company on certain lists. These lists are the Dividend Challengers, Dividend Contenders, Dividend Champions, Dividend Aristocrats and even the Dividend Kings. It is these lists that attract investors who will buy, support and even increase the stock price and market value of the entire company. Stay on a list and investors will notice you. Fall off a list and you’ll be ignored.
Sometimes companies will continue to increase their dividends annually even though their earnings and profits are starting to slip because they want to maintain their status on one of those lists above. That may not make sense initially to the average investor. However, if you understand that management is usually invested in the company through granted stock options, then you understand that if the company falls off one of the lists above, the stock most likely will fall and that’s not good for management’s financial health.
This is why I check quarterly earnings reports for all my stocks. I want to know that their revenues and earnings are increasing, and if they're not, why not? I want to know if they’ve increased their dividend sometime in the last 4 quarters, and if not, why not?
If I can’t figure out why, I sell the stock. Immediately. I may not be the first one to know that things aren’t going well with the company but I don’t want to be the last to know either. That would be a disaster to my financial worth. I then take the money from that sale and invest it in another stock that’s performing as it should. Which for me means going back to the lists. And my first stop is the list of Dividend Aristocrats.
Trade for Today, Invest for the Future.