What Apple & Microsoft teach us about safer wealth creation

When we hear names like Apple , Microsoft , Visa and Costco , we think of market leaders — but they also share another trait: each has raised dividends year after year for a decade or more . These aren't just tech giants; they're part of a special club called the Dividend Growers . S&P Dow Jones's U.S. Dividend Growers Index includes companies that have increased payouts annually for at least ten consecutive years. In other words, these firms commit to sharing growing profits with shareholders.

For Indian investors, that global example offers a valuable lesson. If U.S. stalwarts like Apple or Microsoft (included in the Dividend Growers Index) can weather market storms while steadily boosting dividends, it suggests a model for stability and long-term wealth . Imagine applying the same principle to build a portfolio in India — focusing on companies with a proven dividend track record to meet goals like your child's education or a secure retirement. By learning from these familiar global names, Indian investors can aim for smoother returns without sacrificing growth.

What is Dividend Growth Investing?

Dividend growth investing means buying stocks of companies that regularly raise their dividends each year. These are often established firms with reliable cash flow and prudent management. When a company commits to higher payouts, it signals confidence in future earnings. In practice, dividend growers tend to be quality companies — think consumer staples, tech giants, or banks with steady profits — not fly-by-night penny stocks.

• Consistent Income: Investors get a growing stream of dividend income over time. Even if stock prices wobble, those quarterly payouts can help cushion the fall.
  
• Lower Volatility: Dividend growers often have stable businesses, so their share prices aren't as swingy as purely speculative stocks. This tends to reduce portfolio drawdowns in down markets.
  
• Disciplined Management: A policy of raising dividends implies management is careful with cash and focused on long-term shareholder value.

In short, dividend growth stocks aim to deliver the best of both worlds : reasonable capital growth plus rising income. S&P's definition captures this idea succinctly: the U.S. Dividend Growers Index "measures the performance of companies that have followed a policy of consistently increasing dividends every year for at least 10 consecutive years".

Consider Apple and Visa. Both have hiked dividends annually while expanding their businesses globally. By including such names, the Dividend Growers Index highlights how even big-growth companies can also be reliable payers. For an Indian investor, the lesson is clear: it's not just about chasing the next high-flyer — companies that reward shareholders steadily can be powerful engines for long-term goals (school fees, retirement savings, etc.).

Dividend growers vs. the broad market

How has this dividend-growth strategy performed in practice? Interestingly, over the long run the S&P U.S. Dividend Growers Index has matched the broad market's returns — but with a smoother ride. According to S&P Dow Jones Indices data, the Dividend Growers Index has delivered returns very close to the broad U.S. market benchmark (the S&P U.S. Broad Market Index, BMI) over 3-, 5- and 10-year periods. In fact, its 10-year annualised return is roughly comparable to the broad market's, while in the 3- and 5-year spans it's very similar or even slightly higher. The key difference is risk :

• Over the past 10 years, annualised volatility (standard deviation) of the Dividend Growers Index has been in the mid-teens (around 13-15 per cent), noticeably lower than the broader U.S. market's ~16-18 per cent.
  
• This reduced volatility translates to less severe drawdowns during market slumps. The dividend growers' focus on stable businesses tends to cushion the downside.
  
• As a result, the risk-adjusted returns (think Sharpe ratio) have been higher for the dividend growers strategy. In plain terms, for each percentage point of volatility, dividend growers have earned more than the broader market.

This data suggests that an investor could capture essentially the same wealth growth as the overall market but endure smaller losses when times get tough . For example, during down years the Dividend Growers Index has historically fallen less than the broad index, thanks to its focus on financially solid companies. Over the long haul, the result is a better risk-adjusted profile — more consistent progress toward goals like your child's college fund or your retirement corpus.

Why this matters for Indian investors

As an Indian retail investor, you may not directly buy U.S. stocks, but the principles still apply. Imagine identifying an Indian company that has raised dividends year after year (such firms do exist, especially among banks, consumer staples, and established industrials). Owning a basket of such stocks, or a fund tracking a similar strategy, would aim to deliver stable dividends and growth over time. This strategy can be especially comforting when global markets wobble or when volatile sectors drag down returns.

Think about planning for your child's education in 10-15 years. You want your portfolio to grow reliably, not see too many hair-raising drops. Dividend growers, by nature, reward patience. Similarly, for retirement planning , having a stream of rising dividends can mimic a progressive annuity - inflation-beating payouts that support your living expenses even if markets are shaky.

In practical terms, Indian investors have already seen something similar in funds and stocks that emphasise dividends. But we can take a page from the U.S. playbook. Global firms like Microsoft, Visa or Johnson & Johnson didn't become reliable dividend payers by accident; they have strong, predictable businesses. In India, companies with leading market positions and prudent management (for example, some established banks or consumer goods firms) can play a comparable role.

How to invest with a dividend-growth mindset

1. Focus on quality: Target companies with at least a 5-10 year history of dividend increases. Check their dividend growth rate and payout ratio.

2. Diversify smartly: Don't rely on one sector. The S&P Dividend Growers Index itself caps any single stock's weight at 4 per cent to avoid concentration. Spreading across sectors (tech, healthcare, finance, consumer) reduces idiosyncratic risk.

3. Think long-term: This strategy shines over years and decades, not days or weeks. Reinvest dividends to power compounding — those growing payouts will buy more shares over time.

4. Monitor valuations: Even great companies can become expensive. The ideal is to add dividend growers to your portfolio when prices are reasonable, further boosting potential returns.

5. Be patient: In India and abroad, dividend growth stocks may lag during speculative rallies (if, say, crazy tech stocks surge). But in choppy markets, their steadiness often means holding onto more of your gains .

By keeping these points in mind, you can adapt the dividend growth philosophy at home. It's not a get-rich-quick scheme; it's a get-rich-safely approach. Over the long run, you may find it helps you sleep better at night too.

Introducing the Value Research Dividend Growth Portfolio

Inspired by this global wisdom, Value Research has crafted a Dividend Growth Portfolio tailored for Indian markets. Without revealing every holding, we can say this portfolio follows the same playbook: it's a handpicked set of stocks selected for their ability to grow dividends year after year. The goal is a stable, growing income stream plus capital appreciation over the long haul — much like owning your own mini "Dividend Growers Index" in India.

This is where your investment journey can truly benefit from expert curation. Our analysts screen and monitor companies for strong fundamentals and consistent dividend policies. The Dividend Growth Portfolio is the result of that process, aiming to deliver a smooth ride toward your financial goals.

If the idea of combining global lessons with local expertise resonates with you, consider subscribing to Value Research Stock Advisor . Our Stock Advisor subscription gives you exclusive access to this curated portfolio (and other expert recommendations), along with regular updates and guidance.

Investing isn't just about chasing trends — it's about building and protecting your wealth. By learning from companies like Apple, Microsoft and Visa, Indian investors can adopt a dividend growth strategy that balances growth with stability.

Subscribe now to Value Research Stock Advisor - and let our Dividend Growth philosophy work for you.

P.S. If you are already a subscriber, click here to access the Dividend Growth Portfolio.