Economic Moat

Why it matters to dividend investors

Raising the dividend for 25+ years — what defines a dividend aristocrat — requires growing, defensible earnings for decades, crises included. Only a moated business achieves that: with pricing power to pass on inflation and the position to withstand competitors. A long dividend growth track record is, in fact, one of the best indirect pieces of evidence that the moat exists.

How to spot one without being a professional analyst

• Stable or growing margins over 10 years: without a moat, competition compresses them.
• High, sustained returns on capital: profitability that does not erode is the moat's signature.
• Stable market share despite rivals' attacks.
• Buffett's mental test: if a competitor with unlimited money tried to replicate this business, could they?

Moats also dry up

Kodak, Nokia and print media had moats that looked eternal. That is why the thesis gets reviewed: margins compressing year after year or share slipping away signal a retreating moat — and they usually precede the frozen or cut dividend. A high yield on a company whose moat is breaking is the classic recipe for a dividend trap.