What is Dividend Growth Investing?
Dividend Growth Investing (DGI) focuses on building a portfolio of companies with a proven track record of increasing their dividend payments year after year. Unlike high-yield strategies that chase the biggest payouts, DGI prioritizes:
- Dividend growth rate: How fast the dividend increases annually
- Sustainability: Can the company afford to keep raising dividends?
- Quality: Strong businesses with competitive advantages
The magic happens over time. A stock yielding 2.5% today that grows dividends 10% annually will yield 6.5% on your original cost in 10 years - and your income keeps growing from there.
Why Choose Dividend Growth Investing?
1. Growing Income Stream
Unlike bonds with fixed payments, dividend growth stocks increase your income over time. A well-constructed portfolio can grow income 6-10% annually, outpacing inflation.
2. Quality Companies
Companies that consistently raise dividends tend to be financially strong with durable competitive advantages. The dividend commitment enforces discipline.
3. Lower Volatility
Dividend payers, especially those with long growth streaks, tend to be less volatile than the overall market. The income provides a psychological buffer during downturns.
4. Total Return
Historically, dividends have contributed about 40% of total stock market returns. Reinvested dividends compound dramatically over decades.
$100,000 Portfolio Income Projection (7% Dividend Growth)
Stock Selection Criteria
Not all dividend stocks are created equal. Use these criteria to identify quality dividend growers:
Dividend Growth Rate
Look for 5-15% annual dividend growth over the past 5-10 years. Consistent growth matters more than high starting yield.
Target: 7%+ annuallyPayout Ratio
Dividends as % of earnings. Too high (>75%) is unsustainable. Too low (<20%) may indicate lack of commitment.
Target: 40-60%Dividend Streak
Years of consecutive dividend increases. Longer streaks indicate management commitment and business stability.
Target: 10+ yearsFree Cash Flow
Dividends should be covered by free cash flow, not just earnings. FCF payout ratio under 70% is healthy.
Target: FCF > DividendDebt Levels
Reasonable debt allows financial flexibility. High debt threatens dividend safety during downturns.
Target: Debt/Equity < 1.0Competitive Moat
Sustainable competitive advantages protect profits and dividends. Look for brands, patents, scale, or network effects.
Target: Wide moat businessesAvoid Yield Traps
Extremely high yields (8%+) often signal trouble - the stock price has crashed because the market expects a dividend cut. Always investigate why a yield is unusually high before buying.
Dividend Aristocrats & Kings
These elite groups have proven their commitment to shareholders through decades of dividend increases:
Dividend Aristocrats (25+ Years)
S&P 500 companies with 25+ consecutive years of dividend increases. There are currently 68 Aristocrats.
| Company | Sector | Yield | Streak | 5Y Growth |
|---|---|---|---|---|
| Johnson & JohnsonJNJ | Healthcare | 3.0% | 62 yrs | 5.5% |
| Procter & GamblePG | Consumer Staples | 2.4% | 68 yrs | 5.8% |
| Coca-ColaKO | Consumer Staples | 3.1% | 62 yrs | 3.8% |
| PepsiCoPEP | Consumer Staples | 2.7% | 52 yrs | 7.1% |
| McDonald'sMCD | Consumer Disc. | 2.2% | 48 yrs | 8.2% |
Dividend Kings (50+ Years)
The ultimate dividend achievers with 50+ years of consecutive increases. Only ~50 companies qualify.
Building Your Portfolio
Diversification Guidelines
- 20-30 stocks: Enough diversification without over-dilution
- No more than 5% per stock: Limits single-company risk
- Sector balance: Don't overweight any single sector beyond 25%
- Mix growth rates: Combine higher-yield/slower-growth with lower-yield/faster-growth
Sample Sector Allocation
- Consumer Staples: 20%
- Healthcare: 15%
- Industrials: 15%
- Financials: 15%
- Technology: 10%
- Utilities: 10%
- REITs: 10%
- Other: 5%
DRIP & Dividend Reinvestment
DRIP (Dividend Reinvestment Plan) automatically reinvests your dividends into more shares. This supercharges compounding:
- Automatic compounding: No manual reinvestment needed
- Dollar-cost averaging: Buy at various prices over time
- Fractional shares: Every cent gets invested
- Commission-free: Most brokers offer free DRIP
When to Turn Off DRIP
Consider stopping DRIP when you need the income (retirement), when a position becomes overweight, or when you want to direct new money to underweight positions for rebalancing.
Tracking Your Dividends
Successful dividend investors track key metrics:
- Annual dividend income: Total dividends received
- Yield on cost (YOC): Current dividend / original purchase price
- Dividend growth: Year-over-year income increase
- Forward yield: Expected income over next 12 months
- Payment calendar: When each dividend arrives
Track Everything Automatically
AllInvestView's dividend tracker automatically imports your dividends, calculates yield on cost, projects future income, and shows your payment calendar - all in one dashboard.
Frequently Asked Questions
Track Your Dividend Portfolio
See all your dividends in one place. Track income growth, yield on cost, and upcoming payments with AllInvestView.
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