The Dividend Triangle is a concept that Mike invented to describe the foundation of his investment strategy. It consists of three metrics: revenue growth, earnings growth and dividend growth.
The dividend triangle can help investors to narrow down their stock research and to find leaders in their market. In other words, it is a good start for your dividend growth stock analysis!
Listen now and learn how to rapidly identify companies with great potential for your portfolio.
- How the Dividend Triangle is acting as a good foundation in an investment strategy.
- Why are these three metrics so important (revenue growth, earnings growth and dividend growth) and which one matters more.
- Situations in which the dividend triangle does not apply and what to do.
- Why focusing on dividend growth rather than dividend yield.
- Examples of perfect dividend triangle stocks.
Why is the Dividend Yield NOT Part of the Equation?
Yup, you read it right. The dividend yield is not part of my Dividend Triangle. In fact, I give very little weight in my investing process. Why is that? Because when you pick up a strong company growing its dividend, its yield become a minor play in the equation. What you “lose” in yield, you will get it back in stock appreciation.
I don’t mind the dollar amount or the yield, I solely focus on dividend growth.
When a company shows growing revenues and growing earnings, it can think about showing continuous dividend growth. Don’t forget that the money spent on shareholders is gone from the company. This means it will not help the business generate additional revenue in the future. This is why management must build a strong business model to ensure it can continue paying their shareholders.
I’ve repeated it many times on this blog, but if there is one metric I would have to follow, it would be dividend growth.
I understand that yield is important when you are retired and you expect your portfolio to generate enough income so you can enjoy a stress-free retirement. At that point, yield does matter, but not at all cost. In fact, you are probably better off with a portfolio yield of 3.5%-4% with a steady capital appreciation and withdraw a total of 4- 5% of your portfolio (e.g. selling a few shares) each year. If you aim at an 8% withdrawal rate, no matter if you want to do it through dividend yield or by selling shares; you are going to bleed your portfolio out rapidly.