The three numbers that matter
Yield: the annual dividend as a percentage of the price, what the income is worth today. Growth: how fast the payment has risen over years, what the income will be worth later. Cover: how comfortably profits (better: free cash flow) exceed the payout, whether the income is safe. A 3% yield growing 8% a year with strong cover usually beats a static 6% within a decade, and still exists in a recession.
The companies that raise dividends for decades do it because the business generates more cash every year. The dividend record is a symptom; the business is the cause. Buy the cause.
The yield trap, named and avoided
Yield equals dividend divided by price, so yield rises mechanically when the price collapses. Screens sorted by yield therefore surface companies the market believes will cut, moments before they do. A double-digit yield is almost always a question, not a gift.
The defence is cover: check the payout against free cash flow, not just earnings, and check debt. A company paying out 90% of falling cash flow while borrowing is a cut announced in advance.
Reinvestment, taxes, and the UK bits
While accumulating, reinvest everything: each payment buys shares that themselves pay, and the DRIP projector on this site shows what that loop does over decades. Inside an ISA the entire cycle is tax-free; outside, dividends above the £500 allowance (2026/27) are taxed, which for any serious dividend portfolio is the argument for the wrapper in one sentence.
One honest caveat to end on: dividends are not free money; the share price adjusts on payment. Their real virtues are discipline (cash forces honesty on management) and behaviour (income makes holding easier). Those are enough.