Dividends: The Secret Engine of Returns

Over a period of five decades, dividend-paying companies have significantly outperformed their non-dividend-paying counterparts. According to data from Ned Davis Research and Hartford Funds, the average annual total return of dividend payers is 9.2% compared to 4.3% for the others. Even more impressive is the performance of dividend growth stocks with an annual return of 10.2%. At the center is the oil company ConocoPhillips, which recently increased its regular quarterly dividend by a remarkable 34%. Following increases of 14% in 2023 and 11% in the previous year, this is part of a series of impressive dividend rises. The company's goal is to establish itself in the top quarter of dividend growth stocks in the S&P 500. This dynamic development is fueled by a mix of lucrative acquisitions, profitable capital projects, and significant share buybacks. ConocoPhillips is currently preparing to acquire Marathon Oil for $22.5 billion. This transaction will immediately positively impact cash flow per share and achieve annual cost savings of over $500 million. A significant portion of the free cash flow is expected to flow into further share buybacks, which will additionally enhance the distribution power per share. Another sector leader is Diamondback Energy, which has recorded an impressive growth rate of 8% per quarter since introducing its dividend in 2018. Through strategic acquisitions in the Permian Basin, Diamondback has been able to reduce costs and increase free cash flow. The company recently completed its largest acquisition: Endeavor Energy Resources for $26 billion. This transaction will increase free cash flow per share by 10% next year. At least half of the rising free cash flow is to be returned to shareholders, while the rest will be used to further strengthen the balance sheet.