The dividend history of a company can tell us a lot about the historical performance of the company as an investment. The stability or volatility of dividend payments reflect the earnings environment of the industry in which it operates. Dividend history can also be extrapolated (with provisos) to provide an insight into the future potential of the company.
Typically the dividend history of lower growth firms such as power and telecommunication utilities will reflect a zero to low annual rate of growth. For these companies, a large proportion of total returns comes from dividends and share price growth can be less exciting. Often these companies operate in mature industries and earnings increases tend to come through incremental operational improvement rather than rapid market expansion.
Growth shares on the other hand, often pay low to no dividends. These companies have good growth prospects in emerging or growing markets but must invest heavily in operational infrastructure, inventory and market development.
New, young and small companies are often good examples. In the growth phase of their life cycle they invest and spend more than they earn as they try to build their businesses. If these companies are successful in growing into mature businesses, they will start to reward shareholders with a growing stream of dividends and often franking credits.