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Dividend Growth Investing: A Slow Climb to Passive Income

By Edited Sep 30, 2016 1 2

One of my favorite investing strategies is dividend growth investing. This wealth building strategy focuses as the name implies on dividend growth. It is a steady and very slow process but in the end it can be very rewarding even to a point where you don’t have to work again. The idea behind dividend growth investing is to find companies that have reliable dividends and a history of increasing dividends every year. In theory, as years go by dividend payments should climb at a steady rate. Like I said it’s a slow strategy and many times it takes a lot of investing discipline to be able to hold stocks for lots of years. Think about fifteen to twenty years or even more. The idea is to accumulate as many assets that churn out increasing dividend income as possible so that in the future the dividends generated by your portfolio can have a significant impact in your lifestyle. 

So how do you get started in dividend growth investing? If you do not know how to choose reliable dividend stocks you should contact a certified advisor or do some research in order to find a nice list of stocks worth owning. This step is crucial especially if you are not familiar with terms like cash flow and leveraged free cash flow. The first thing that you need to do before you start your investing journey is to save money. Sorry, but you can’t invest without cash. Develop a savings habit and go a little frugal in your lifestyle if you need to. You really need to cut expenses if you want to save money especially if you are basically living on the edge.

 You can invest the money you save in dividend paying stocks  and have them enrolled in a dividend reinvestment program. This will help your money grow in three ways. First, you are regularly adding money and investing it in your account. Second, dividends are reinvested buying more shares of the company every time they are paid. More shares equal a higher dividend. And third since the portfolio would be constructed out of companies that increase dividend payments each year you can expect the payments to grow faster and faster with each passing year.  If done correctly over the years you can call your broker and instruct him or her to stop the dividend reinvestment on all stocks and send those payments home and use the income to cover other things in life.  

This looks simple but it really takes a lot of discipline especially since people tend to panic if they see the price of a stock is going down or if there is a market crash. While this strategy is slow and less risky than other investing strategies you should still take into account your investing temperament.



Sep 14, 2011 7:56am
Yeah, good article... I'm all about dividend paying stocks as well. It may take a while but many years from now I won't have any of my dividends reinvested -- but RATHER direct deposited! Until then my money works for me!
Sep 14, 2011 9:57am
Its amazing how fast dividends start to grow after five years of dividend increases especially if the securities are enrolled in a dividend reinvestment program. After ten years the income starts to grow faster and faster. The things is finding a good company that has a durable competitive advantage and that has a good history of increasing dividends and then letting time do its magic.
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