This is the 'winning formula' for dividend investing, says Trivariate Research's Adam Parker

There are some solid returns to be found in dividend stocks, but not all are created equal. For Trivariate Research, its "winning formula" focuses on large-cap stocks that grow their payouts. In fact, dividends are a durable return factor for stocks, founder Adam Parker said in a recent note. He highlighted an "investable universe" of 479 stocks, a cohort that has outperformed the top 700 equities on a 25-year and five-year timeframe. Stocks in this group have a market cap of at least $10 billion, a dividend yield that's either greater than 10 basis points and growing or greater than 50 basis points. The median stock in this group currently grows its dividend 5% each year, the firm found. One basis point is equal to 0.01%. Breaking it down even further, Parker found that stocks in the two lowest payout ratio quintiles have performed best over the past five years and that dividend increases work best for high-cash and cheap companies. "Stocks with cash to market cap. above 25% and net cash to market cap. above 10% that increase their dividend massively outperform stocks that have less cash." Parker noted. Those that are cheap — meaning their valuation is less than 10-times price-to-forward earnings — and that also boost their payouts outperformed the more expensive, dividend increasing stocks, he said. Lastly, lower payout ratio companies that raise their dividends "strongly outperform" their industry group following the announcement, Parker said. …