Dividend Growth
📰 Monday, July 20, 2026: Welcome to the FVEr Invest Blog: Your Guide to Data-Driven Market Analysis
Hello FVEr Invest Subscribers!
Thank you to our new and continuing subscribers for your support of our platform. Our goal is to bring you frequent market insights, using our proprietary FVE algorithm to help you gain a clearer understanding of market dynamics.
Disclaimer: The FVEr Invest blog and website should not be construed as specific investment advice, and our approach is not suitable for everyone. It is intended to demonstrate what our algorithmic strategy is doing each week, with insight into how we are thinking about the stock markets, and how we approach investing through a data driven lens. Investing involves risk, and our models are inherently uncertain. Please consult a professional and licensed investment advisor for investment advice.
The Case for a Dividend Growth ETF
There are four primary ways corporations can use the profits they generate to benefit shareholders:
Share buybacks — The company repurchases its own shares, reducing the number of shares outstanding and often creating upward pressure on the stock price, which can benefit remaining shareholders.
Holding cash or making strategic investments — Companies can retain profits to strengthen their balance sheets or invest in other businesses and technologies. Examples include Microsoft’s investment in OpenAI and Amazon and Zoom Video’s investments in Anthropic.
Returning capital through dividends — Companies can distribute a portion of their profits directly to shareholders through regular cash dividend payments.
Reinvesting in the business — Companies can use profits to expand operations, develop new products, hire talent, improve infrastructure, or pursue other growth opportunities that increase the long-term value of the company.
Ultimately, the goal of each approach is the same: to deploy capital in the way that management believes will create the greatest long-term value for shareholders.
As we discussed in Blog 14 on December 30, 2025, how a company chooses to deploy its capital depends on the goals of its shareholders, the opportunities available to the business, and the stage of the company’s growth:
https://www.fverinvest.com/blog/inflation-and-stocks
Companies in different industries, or at different points in their life cycles, often make different capital allocation decisions. These choices can have a significant impact on earnings growth, dividend income, and long-term stock price appreciation.
For example, mature companies like Coca-Cola often use excess profits to pay regular quarterly dividends. By returning a portion of earnings directly to shareholders, less capital is available for reinvestment into new growth opportunities. As a result, these companies typically have slower earnings growth and slower share price appreciation, but shareholders benefit from a reliable and consistent income stream.
One of the most compelling groups of companies for long-term investors are those that have consistently increased their dividend payments over many years. These companies are not necessarily the ones with the highest dividend yields; rather, they have demonstrated the ability to grow earnings, generate strong cash flows, and return increasing amounts of capital to shareholders.
The most famous group of these companies is the Dividend Aristocrats. The S&P 500 Dividend Aristocrats Index, maintained by S&P Global, tracks companies in the S&P 500 that have increased their dividends every year for at least 25 consecutive years. The index equally weights each company, treating each constituent as a distinct investment opportunity regardless of market capitalization.
While the Dividend Aristocrats represent some of the highest-quality dividend-paying companies, one limitation of the index is that the 25-year requirement can exclude many companies that have demonstrated strong dividend growth but have not yet reached that milestone. For example, newer dividend-paying technology companies, such as Microsoft and Apple, have established a consistent history of dividend growth, but do not yet meet the 25-year requirement.
The dividend growth index we track on the FVEr web application is VIG (Vanguard Dividend Appreciation), which follows a broader dividend growth methodology based on the S&P U.S. Dividend Growers Index. This index is designed to measure the performance of U.S. companies that have consistently increased their dividends for at least 10 consecutive years.
An important feature of this index is that it excludes the highest-yielding 25% of eligible companies. The reason is that an unusually high dividend yield can sometimes be a warning sign rather than an opportunity. When a company’s stock price declines significantly, its dividend yield can rise even if the underlying business is deteriorating. By focusing on companies with a consistent history of dividend growth rather than simply selecting the highest-yielding stocks, the index seeks to identify financially healthy businesses with sustainable long-term shareholder returns.
One interesting characteristic of dividend growth companies is that they are often among the most consistent and disciplined earnings growers. Maintaining a policy of increasing dividends year after year requires management to generate reliable cash flows and allocate capital carefully. A growing dividend commitment can encourage management to be more selective in how it deploys capital, since future dividend increases require reliable and sustainable cash flows. This "discipline effect" is a well-documented idea in corporate finance: without the constraint of returning capital to shareholders, companies may sometimes retain excess cash or allocate it less efficiently. Of course, companies capable of sustaining a decade or more of dividend increases tend to already be strong, cash-generative businesses, so dividend growth likely reflects financial discipline as much as it reinforces it.
VIG is one of the ETFs we most closely follow for long-term investors because of its combination of dividend growth, diversification, and attractive historical statistical characteristics within our model.
At FVEr Invest, we evaluate ETFs using our FVE model and test their historical behavior with statistical tools such as the Augmented Dickey-Fuller (ADF) test. Without getting too technical, the ADF test helps determine whether an ETF has a tendency to revert back toward its FVE curve. This mean-reverting behavior is important because valuation-based strategies rely on the idea that securities can become temporarily overvalued or undervalued but tend to move back toward a long-term equilibrium over time.
VIG demonstrates strong mean-reverting characteristics under the ADF test and has maintained a relatively low residual standard deviation of less than 6% over the past decade, along with consistent price appreciation.
We want to emphasize that FVEr Invest should broadly be viewed as an asset allocation tool. While we feature leveraged ETF strategies as one component of our platform, we recognize that these strategies can be highly volatile, are not appropriate for every investor, and carry the risk of substantial losses due to the use of leverage. As we state on our homepage, we are “much more” than leveraged ETFs.
Within our own personal investing approach, leveraged ETFs represent only a small portion of our overall allocation, while the majority of our exposure is typically focused on non-leveraged ETFs such as VIG and other diversified equity strategies.
📈 FVEr Weekly Market Update: July 20, 2026
Continued volatility in the technology-related segments of the market broke to the downside in earnest this week. XLK (Technology Select Sector SPDR Fund), QQQ (Nasdaq-100), and SOXX (iShares Semiconductor ETF) all posted notably negative weeks, triggering our short-term leverage signal. As a result, all three ETFs will move into leveraged status for the coming week.
The Industrials sector (XLI), which has been a proxy for the AI data center buildout trade, also had a negative week, enough to move it out of inverse and back into neutral positioning.
Materials (XLB) is also moving into leveraged status for the coming week via the short-term signal. This change is largely the result of unusual arithmetic within the model. Because XLB has traded in an exceptionally narrow range over the past seven weeks, even last week's modest decline was enough to trigger the leveraged signal.
The Russell 2000 (IWM) remains in inverse status, albeit by a very narrow margin.
Geopolitical tensions are once again rising with renewed military escalation involving Iran, increasing uncertainty surrounding the Strait of Hormuz, and the potential for higher oil prices. These developments could add further pressure to an already fragile market.
See you next time. In the meantime, please don't hesitate to reach out if you have any questions.
The FVEr Team
Unlock Deeper Insights: Schedule a Learning Session
As a valued member, we encourage you to take advantage of a personalized 30-minute learning session with one of our co-founders. This is your opportunity to get tailored guidance on how to interpret our data and effectively implement our strategies in your own investment approach.
To schedule your session, simply email us at info@fverinvest.com with the subject line: "Learning Session". (Please note: We do not provide specific investment advice.)
