The 10-Year Dividend Test: Screening for Sustainable Annual Increases

If you’re serious about dividend growth investing — not the flashy “yield-chasing because it feels productive” version, but the disciplined, compounding-machine version — then you eventually run into a hard truth:

Anyone can raise a dividend once.

Twice? Still easy.

Three years? Respectable.

Ten straight years?

Now we’re talking about durability.

The 10-Year Dividend Test isn’t a meme. It’s not a buzzword. It’s a filter — and a surprisingly ruthless one. It’s designed to answer one question:

Can this company raise its dividend through multiple economic cycles without breaking character?

Because anyone can look brilliant in sunshine.
The real test is whether they can keep paying you more when it rains.

Let’s build this framework properly.

Why Ten Years Matters

Ten years is long enough to include stress.

In most decades you’ll get:

At least one recession scare
One market correction
Sector rotation
Margin compression
Interest rate changes
Political or regulatory shifts
And some kind of “this time it’s different” narrative

A company that increases its dividend every single year through that noise is showing something deeper than generosity.

It’s showing resilience of cash flow.

Not stock price.

Not hype.

Cash flow.

And dividends don’t lie for long. If the money isn’t there, the dividend eventually exposes it.

Step 1: Confirm True Annual Increases (No Technicalities)

First, make sure you’re not being tricked by calendar quirks.

Some companies shift payment schedules, pay special dividends, or increase late in the fiscal year.

The 10-Year Test requires:

A higher regular annual dividend per share each year
No flat years
No cuts
No resets masked by accounting language

If Year 7 matches Year 6 exactly? It fails the test.

This is not a participation trophy system.

Step 2: Revenue Growth Must Support It

A company increasing dividends without revenue growth is playing financial gymnastics.

Pull a 10-year revenue chart. Ask:

Is revenue trending upward?
Is it stable during downturns?
Is growth organic or acquisition-driven?

Acquisition growth is fine — if it integrates well. But if revenue spikes and then stalls, dividend growth might be riding borrowed momentum.

You’re not just screening for increases.

You’re screening for economic engine durability.

Step 3: Earnings Per Share — The Real Fuel Tank

Dividends come from earnings. Eventually.

Check:

10-year EPS growth rate
Consistency
Volatility

A smooth upward trajectory? Good.

Wild swings? Be cautious.

If EPS collapses during recessions but the dividend continues rising, check payout ratios. The company may be stretching.

And stretching works… until it doesn’t.

Step 4: Payout Ratio Discipline

This is where many high-yield traps reveal themselves.

Healthy ranges depend on sector, but broadly:

30–60% for most industrials and consumer companies
60–75% for utilities or slower-growth sectors
REITs use AFFO, not EPS

If a company has been increasing dividends but payout ratios are creeping toward 90%+, you’re not watching strength — you’re watching leverage disguised as generosity.

The 10-Year Test asks:

Can they keep increasing without over-distributing?

Step 5: Free Cash Flow Coverage

EPS can be adjusted.

Free cash flow is harder to fake.

Over ten years, check:

Is FCF positive most years?
Does FCF comfortably cover dividends?
How does FCF behave during downturns?

You want margin of safety.

Dividends paid out of thin air are just IOUs waiting for gravity.

Step 6: Debt Trend Over the Decade

A company can fund dividend growth with debt.

For a while.

Look at:

Debt-to-equity trend
Net debt / EBITDA
Interest coverage ratio

If debt has been climbing steadily to maintain growth, the dividend may be a façade.

A sustainable dividend grower strengthens its balance sheet over time — or at least maintains stability.

Step 7: Dividend Growth Rate Consistency

Not all 10-year streaks are equal.

Compare:

Company A:
Yearly increases of 2–3% like clockwork.

Company B:
8%, 12%, 4%, 15%, 1%, 10%, 3%, 9%…

Company A looks boring.

Company A is often superior.

Consistency suggests planning.

Erratic increases suggest reactive management.

Step 8: Return on Invested Capital (ROIC)

Sustainable dividend growth requires efficient capital allocation.

Check 10-year ROIC trends:

Is it stable?
Is it above cost of capital?
Is it improving?

Companies that earn high returns internally don’t need to overextend to grow dividends.

They reinvest profitably — and then share the surplus.

Step 9: Competitive Moat Analysis

Numbers tell the story.

Moats explain the numbers.

Ask:

Does this company have pricing power?
Brand loyalty?
Network effects?
Switching costs?
Regulatory barriers?

A 10-year dividend streak without a moat is often fragile.

A moat sustains pricing during inflation, which sustains margins, which sustains dividend growth.

It’s a chain.

Break one link, the streak ends.

Step 10: Recession Performance Review

Go back to the last downturn.

What happened?

Did revenue dip modestly?
Did earnings collapse?
Did the company freeze hiring?
Did they maintain dividend growth calmly?

The real beauty of the 10-Year Test is that it forces you to examine behavior under stress.

That’s where management character reveals itself.

The Psychological Edge of a 10-Year Filter

Here’s something underrated:

The 10-Year Dividend Test reduces emotional investing.

It filters out:

Trend stocks with no track record
Fads
Companies that just initiated dividends
Yield traps trying to impress you

It nudges you toward:

Mature business models
Cash-flow discipline
Management teams who think in decades

That shift alone can improve long-term returns.

What the Test Doesn’t Do

Important: this is not a magic wand.

It does NOT guarantee:

Future growth
Stock price appreciation
Immunity from disruption

It does provide:

A baseline of historical durability
Evidence of capital discipline
Proof of shareholder orientation

Think of it as eliminating 80% of the noise.

Layering the 10-Year Test With Valuation

Now comes the part many dividend investors ignore.

Even the best dividend grower can be a bad investment at the wrong price.

After a company passes the 10-Year Test:

Check valuation metrics:

Forward P/E vs historical average
Dividend yield vs historical range
Free cash flow yield
PEG ratio

You want quality + reasonable price.

Not quality at euphoric multiples.

Comparing 5-Year vs 10-Year Screens

Some investors use 5-year streaks.

Five years can include expansion only.

Ten years usually includes contraction.

That’s the difference.

A company that survived both expansion and contraction while increasing dividends demonstrates structural resilience.

Five years shows potential.

Ten years shows proof.

Sector-Specific Adjustments

The 10-Year Test must be interpreted correctly across sectors.

Utilities

Slower growth, higher payout ratios acceptable.

REITs

Use AFFO growth and payout ratio against AFFO.

Financials

Look carefully at capital ratios and stress test results.

Cyclicals

Examine whether dividend growth pauses during downturns or continues.

Context matters.

Building a Watchlist Using the 10-Year Test

Here’s a practical workflow:

Screen for 10 consecutive annual increases.
Filter for payout ratio below 65%.
Filter for positive 10-year EPS growth.
Check FCF coverage.
Remove companies with rising debt ratios.
Rank by 5-year dividend growth rate.
Compare valuations to historical norms.

You’ll likely narrow thousands of stocks down to a manageable list.

And what remains is often high-quality.

The Hidden Benefit: Time as a Filter

Ten years isn’t just about numbers.

It’s about culture.

Companies that prioritize consistent dividend growth tend to build a culture of:

Fiscal conservatism
Long-term planning
Shareholder communication
Capital discipline

That cultural element is difficult to quantify — but it shows up in the streak.

Compounding: The Real Power Move

Here’s where it gets interesting.

A company growing its dividend 7% annually for 10 years has nearly doubled its payout.

If you reinvest those dividends, compounding accelerates.

The 10-Year Test is not just about safety.

It’s about growth layered on stability.

That combination is powerful over 20–30 years.

When to Break the Rule

There are exceptions.

A company with 8 or 9 years of growth may still be compelling if:

It survived a recent recession intact
Balance sheet is pristine
Growth runway is long

But make breaking the rule intentional.

Not emotional.

The Dividend Cut Reality

Here’s the uncomfortable truth:

Most dividend cuts don’t come out of nowhere.

Warning signs appear:

Rising payout ratios
Debt expansion
Flat revenue
Margin erosion
Defensive language from management

The 10-Year Test combined with ongoing monitoring reduces the probability of surprise.

It doesn’t eliminate risk.

It reduces it.

Why This Test Outperforms Yield Chasing

High yield alone tells you nothing about sustainability.

In fact, unusually high yield often signals risk.

A 3% yield growing at 8% annually often outperforms an 8% yield that never grows — or worse, gets cut.

The 10-Year Test tilts you toward dividend growth, not dividend desperation.

The Long-Term Mindset

If your goal is:

Rising income
Inflation protection
Lower portfolio volatility
Psychological comfort during downturns

Then the 10-Year Dividend Test aligns with that objective.

It forces patience.

It encourages discipline.

It rewards consistency.

Final Thoughts

The 10-Year Dividend Test isn’t flashy.

It doesn’t generate viral headlines.

It won’t help you double your money in six months.

What it will do is quietly screen for companies that have demonstrated:

Resilient cash flows
Disciplined payout management
Operational strength across cycles
Shareholder commitment

In dividend growth investing, durability beats drama.

Ten years of annual increases is not an accident.

It’s evidence.

And in a market filled with narratives, evidence is a powerful filter.

If you’re building a portfolio designed to pay you more every year — not just today, but a decade from now — then start with companies that have already proven they can do exactly that.

The past doesn’t guarantee the future.

But it often reveals who is structurally prepared for it.

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