Following up on my series of 6 Days to Dividend Growth Investing, I continue today with Day#2: Why choose dividend growth investing? Once you know why you invest, the next step is to build a solid investing strategy. Many investors think all is required is money and the ability to read a few financial newsletters to trade. Then, they get more experience and believe they can successfully invest by reading and analyzing financial reports. That’s definitely a start, but you won’t go far if you only go from one trade to another without considering your portfolio as a whole. This is why building an investment strategy is so important. Most importantly, your investment strategy will help you avoid investing pitfalls and lose money. Today, I’ll share with you why I decided dividend growth investing was the best strategy for me.
What is dividend growth investing?
A dividend portfolio is more often seen as being managed with a value approach. A value approach is comforting for all investors as it seems to come directly from good sense; look for solid companies with a sound business model that will survive over time. Value stocks are known to be blue chips that don’t grow very fast. However, it doesn’t mean you can’t generate growth at all with a value portfolio. When considering dividend stocks, do we talk about dividend growth or capital growth? What about looking for both kinds of growth? When I discuss the topic of a dividend growth portfolio; I’m looking to buy companies that will both contribute to increasing my payouts but also boost the value of my holdings. Therefore, a dividend growth portfolio includes companies that have great potential to grow in value as well as keeping dividend payouts increases at the center of their priorities.
These companies exist but the criteria to find them has become elitist. Only the best businesses will meet both high sales growth and high dividend payout growth. I decided to go towards dividend growth investing because I was looking for a way to invest and make important returns without having my nose on my stock screens all day long. I’ve read many stories about day traders, penny stock hunters and option trading professionals. They all made lots of money, but they all work long hours on their trades. After all, money doesn’t come easy for anybody.
Instead, I decided to find a way to spend lots of time to analyze a company but once bought, I could sleep on those shares for a while. This is what dividend growth investing brings me at the moment. It is very hard to find a good company to buy, but I only have to follow them quarterly once purchased. This is the perfect balance between investing returns and time spent managing my portfolio.
Why dividend investing strategy is among the best ever?
I don’t think you should believe me more than any other blogger, friend or family member when it comes down to choosing your investing strategy. After all, we all are going to tell you that we know THE investing strategy that works. I didn’t pick my friend’s brain when it was time for me to build my investing strategy. I looked for something that has solid ground, I looked for rational arguments. This is how I found the Ned Davis Research Group (NDR). NDR is an investing research firm that goes through all economic layers to find data that matters to investors. Founded in 1980, NDR now employs over 125 people in Florida, Boston, Atlanta, San Francisco and even London. They conducted research on stock returns since 1972 to see which kind of companies offered the best returns. Here’s the result:
As you can see, dividend growers & initiators are the beating the S&P 500 by 2.5% annually since 1972. In other words, investing in dividend growth stocks provides you with the highest chance of reaching financial independence or retiring without any worries. If you are interested in this research, I suggest you read this article I wrote about 7 proven investing rules to succeed.
I made the decision to switch over dividend investing in 2012, two years after buying this blog. I then cleared all my non dividend paying stocks and replaced them with solid companies. I made this decision for the following reasons:
- I wanted to invest for the long term
- I wanted to grow dividend payments
- I wanted to keep my investment process simple and effective
Three years later, I can tell you it works. My investment return is relatively good (17.1% annualized over from 2012 to 2015) and I don’t have to spend my evenings working on my portfolio.
In my next edition of the 6 Days to Dividend Growth Investing Series, I’ll tell you how I pick my stocks.
Day#1 What is your purpose to invest
Day#2 Why dividend growth investing
Day#3 What is the Best Dividend Growth Stock?
Day#4 How to Proceed with Your First Trades
Day #5 Tools of the Trades – Dividend Investing Resources
Day#6 Portfolio Management Tips
Excellent posting. I am all about dividend growth companies. Capital gain with dividend income are the best combination that I can ever think of in stock market. Truly Buy and Forget companies has always paid off very well and it surely will in the future.
I agree with BSR – we love DGI!!!
That chart shows it all. I just wonder why anyone would question the power of dividend investing.
some people prefer index investing through ETF 😉
But I really think there is little chance of failure if you do a due dilligence and buy strong dividend stocks (vs buying high dividend yield stocks).