Investing for Dividend Growth

December 2017

INSIGHTS

Investing for Dividend Growth

Why Focus on Dividend Growth?

Dividend growth signals the financial strength of a company and shows that a company has sufficient earnings to support dividend increases. It demonstrates that management is confident enough about future cash flows and business success to share current prosperity with its shareholders. As companies become more profitable, they share more of their earnings in dividends. Historical studies have shown that dividend growers and dividend initiators have been the best performing stocks among all equities. Dividends may provide a significant source of total return.

Dividend income is only one component of total return and equity prices can go down in value. Common stocks do not assure dividend payments. Dividends are paid only when declared by an issuer's board of directors and the amount of any dividend may vary over time. There is no guarantee that this investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for a long-term, especially during periods of downturn in the market.

Advantages of Dividends

Stock prices may fluctuate, but dividend payments are always positive. As the chart below illustrates, an investment of $1,000 in a simulation of the S&P 500 Index at the end of 1925 generated price appreciation of more than $209,000 over the succeeding 91 years. The real power of the investment came through reinvesting dividends over time which produced more than $7 million of additional wealth over price appreciation alone in this illustration.

The impact of inflation over such a long period is pronounced as it takes over $13,000 to buy the same amount of goods that $1,000 bought in 1925. In other words, a dollar in 1925 is worth less than 8 cents today according to the hypothetical illustration.

$16,384,000 $4,096,000 $1,024,000

$256,000 $64,000 $16,000

How Much Difference Would Reinvested Dividends Have Made In This Hypothetical Example?

1926 ? 2017

Both price appreciation and total return outpaced in ation....but reinvesting dividends created over $7.3 million of additional wealth on a $1000 investment ? dividends accounted for approximately 97%

of the total return in this hypothetical example.

$7,337,656 $209,535 $13,761

$4,000 $1,000

In ation turned a 1925 dollar into less than 8 cents by 2017

$250 Dec-25

Dec-33

Dec-41

Source: Morningstar Direct

Dec-49

Dec-57

Dec-65

Dec-73

S&P 500 TR

S&P 500 PR

Dec-81

Dec-89

Consumer Price Index

Dec-97

Dec-05

Dec-13 Dec-17

S&P 500 Index Total Return (TR) includes price appreciation or depreciation (Price Return [PR]) and reinvested dividends (Income Return [IR])

S&P 500 Index is a group of widely held stocks which is commonly regarded to be representative of the large capitalization stock universe. Dividend yield is one component of performance and should not be the only consideration for investment.

Consumer Price Index (CPI): A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services

Performance data quoted represents past performance, which is no guarantee of future results. Investing in an index is not possible. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than performance data given. The hypothetical results of the indices illustrated do not include the effects of any additional applicable charges which would lower returns. Dividend-paying investments may not experience the same price appreciation as nondividend paying instruments, dividend-issuing companies may choose not to pay a dividend, or the dividend may be less than what is anticipated.

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Dividend Payers/Growers

As companies become more profitable, they may share more by increasing their dividends. The chart below illustrates a hypothetical example of dividend payers or growers based on a simulation of the S&P 500 Index. This select group of dividend payers and growers has outpaced the hypothetical $1,000 investment in the S&P 500 Index on a total return basis by more than a two-to-one margin over the past 26 years. In fact, the compounded growth of reinvested dividends of this hypothetical model of the Index has exceeded the total return of the S&P 500 Index (and far outperformed the growth of reinvested S&P 500 Index dividends).

Not surprisingly, the performance of the S&P 500 Index versus the Dow Jones U.S. Select Dividend Index was more comparable in the 1990s when price appreciation was a dominant proportion of the S&P 500 Index's total return. The volatility of the 2000s created an environment where the S&P 500 Index significantly lagged the U.S. Select Dividend Index in spite of severe ups and downs for both indexes.

Dividend Payers/Growers vs. "the Market" Return on a Hypothetical $1000 Investment

1991 ? 2017

$22,000 $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000

$0 Dec-91

Dec-93

Dec-95

Dec-97

Dec-99

Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15

$19,780

$13,720 $10,861 $5,451 $1789 Dec-17

Source: Morningstar Direct

DJ Select Div IR

DJ Select Div TR

S&P 500 IR

S&P 500 TR

Consumer Price Index

Total Return (TR) includes price appreciation or depreciation (Price Return [PR]) and reinvested dividends (Income Return [IR]) Consumer Price Index (CPI): A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services The Dow Jones U.S. Select Dividend Index represents the highest yielding stocks in the Dow Jones U.S. Dividend Index that have:

? Grown the dividend over time (a non-negative historical five-year dividend-per-share growth rate) ? Paid out a low to moderate percentage of earnings (a five-year average dividend to earnings-per-share ratio of less than or equal to 60%) ? Paid dividends in each of the previous five years ? Provided reasonable liquidity to investors (a three-month average daily trading volume of 200,000 shares)

Performance data quoted represents past performance, which is no guarantee of future results. Investing in an index is not possible. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than performance data given. The hypothetical results of the indices illustrated do not include the effects of any additional applicable charges which would lower returns. Dividend-paying investments may not experience the same price appreciation as non-dividend paying instruments, dividend-issuing companies may choose not to pay a dividend, or the dividend may be less than what is anticipated.

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Contribution of Dividends to Total Return

Many of us have heard the statistic that dividends are a significant component of total return to equities over time. It is the combination of the dividends paid and their effect when reinvested that creates such a significant contribution.

In the decade of the 1930s and again in the 2000s, the contribution of reinvested dividends provided a buffer to decade-long losses. (The values are "NA" because the return to reinvested dividends was positive while price appreciation was negative).

Even in very positive decades for the S&P 500 Index like the 50s, 80s and even the 90s, historically reinvested dividends accounted for a substantial part of total return.

600.0% 500.0% 400.0% 300.0% 200.0% 100.0%

0.0% -100.0%

Contribution of Dividends to Total Return by Decade ? S&P 500 Index

47%

27%

44%

76%

52%

NA

78%

NA

1930s

1940s

1950s

1960s

1970s

S&P 500 PR S&P 500 IR

1980s

1990s

2000s

Source: Morningstar Direct

Total return (TR) includes price appreciation or depreciation (Price Return [PR]) and reinvested dividends (Income Return [IR])

Performance data quoted represents past performance, which is no guarantee of future results. Investing in an index is not possible. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than performance data given. The hypothetical results of the indices illustrated do not include the effects of any additional applicable charges which would lower returns. Dividend-paying investments may not experience the same price appreciation as nondividend paying instruments, dividend-issuing companies may choose not to pay a dividend, or the dividend may be less than what is anticipated.

Time and Math Are Allies

Dividends have been a significant component of equity returns over time. When dividends are paid, they make a positive contribution to total return whether the stock prices are up or down and act as a cushion during market declines.

Dividend paying companies that grow their dividends have historically provided superior returns relative to the broad U.S. equity market. Dividend increases have the potential to induce increases in the price of the stock generating those dividends. Because of the compounding dynamics of dividends ? the longer an investor's time horizon, the greater the possible impact of reinvested dividends on total return. The dividend growth can generate significantly higher cash flow to investors during a typical retirement time horizon of 20 to 30 years as well as help mitigate the effect of inflation.

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A Word About Risk

Dividend-paying investments may not experience the same price appreciation as non-dividend paying instruments, dividend-issuing companies may choose not to pay a dividend, or the dividend may be less than what is anticipated. The fixed dividend may be less attractive in a rising interest rate market.

Performance data quoted represents past performance, which is no guarantee of future results. The investment return and principal value of an investment in a Fund will fluctuate so that an investor's shares, when redeemed,may be worth more or less than their original cost. Current performance may be higher or lower than performance data given. For performance information current to the most recent month-end, visit pricing-performance.

Please consider the investment objectives, risks, charges and expenses of the fund carefully before investing. The prospectus and the summary prospectus contain this and other information about the Fund. To obtain a prospectus or a summary prospectus, contact your financial advisor or download and/or request one at literature-center or call Touchstone at 800.638.8194. Please read the prospectus and/or summary prospectus carefully before investing.

Touchstone Funds are distributed by Touchstone Securities, Inc.*

*A registered broker-dealer and member FINRA and SIPC

Touchstone is a member of Western & Southern Financial Group

Not FDIC Insured | No Bank Guarantee | May Lose Value

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TSF-1350-1712

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