Dividend growth investing is a powerful investment strategy for so many reasons, but one of its most powerful aspects is right in the name – dividend growth.
Dividend growth investing is a simple but powerful investment strategy that advocates buying and holding shares in world-class enterprises that pay reliable and rising cash dividends.
These reliable and rising dividends are funded by reliable and rising profit.
Of course, only a great business can produce growing profit and growing dividends, year in and year out, for decades on end.
It’s through this filter, this process of elimination, that you end up with some of the best businesses in the world.
Think companies like Apple (AAPL), Nike (NKE) and Pepsi (PEP).
The dividend growth investing strategy is so powerful, I used it to go from below broke at age 27 to financially free at 33 – and I did that without a college degree or a high-paying job.
Now, not every dividend growth stock out there is a huge winner. But more often than not, high-quality dividend growth stocks are some of the very best stocks you can possibly own.
And a big reason for this is the underlying power of the dividend raises themselves.
I’m going to show you the math behind this incredible power, which could help you to build significant wealth and passive income over time.
Let’s dig in…
Dividend raises are just as they sound.
They’re an increase in the dividend amount a company is paying its shareholders.
So if a company is paying out, say, a $1.00 cash dividend per common share every quarter, an increase in this payout to $1.10 is a 10% dividend raise.
You might look at that and think 10 cents? What’s the big deal?
Well, it’s actually a bigger deal than you think.
Just think of the last time you got a 10% raise at work.
You might have never gotten this kind of pay raise.
Now think of getting that kind of pay raise year after year … without doing any work.
That’s what it’s like to be a dividend growth investor. It’s pretty sweet.
And these “pay raises” add up over time, especially once you’ve got a decently-sized portfolio of high-quality dividend growth stocks working for you.
I’ll give you a real-life example, using my own portfolio to show you the incredible power of dividend raises.
My real-money dividend growth stock portfolio, which I’ve dubbed the FIRE Fund, has over 100 different world-class enterprises inside of it.
What that means is, I’m getting “pay raises” regularly. It’s not uncommon for me to experience five or ten dividend raises in any given month.
And while they might seem small at the individual level, they collectively add up in a hurry. Especially when this is compounding week after week, month after month, year after year.
My FIRE Fund experienced 10 different dividend raises over the course of September 2020.
Yes. That’s 10 increases to my passive income. During a global pandemic.
If announcing a dividend increase during one of the most uncertain times in modern human history doesn’t speak to the quality of a company, I don’t know what will.
This speaks to both the resiliency of these businesses and the overall quality of my portfolio.
I will say, though, that some of these dividend raises were relatively small. Quite a few companies are choosing to be cautious right now, and I can’t blame them.
On the other hand, some of these dividend raises were very nice – right in line with what I’d expect in a normal year, let alone during a pandemic.
Microsoft Corporation (MSFT), for instance, raised its dividend by almost 10% during September, which doesn’t even skip a beat for them.
Again, you might think a 10% increase to a dividend doesn’t seem like much.
But I really must push back on that. These raises add up over time.
Dividend growth investing won’t get you rich overnight. This is a get-rich-slowly-but-surely kind of strategy. Social media and the Internet makes people think that success happens instantly. But success in life is built one day, one step, one inch, one pay raise at a time.
So check this out.
My FIRE Fund experienced 10 different dividend raises in September.
In total, after factoring in all 10 dividend raises, my annual dividend income went up by $41.36.
This number is, admittedly, one of my lighter months. And that’s not a surprise. I mean, we’re in the middle of a global pandemic.
But even a $41.36 bump in annual dividend income, created without any work or new capital investment on my part, is highly noteworthy.
And that’s kind of the point here. Even during a pandemic, in a pretty unimpressive month, dividend raises are still incredibly powerful.
Here’s why.
I can think back to when I first started investing.
I had $0 in annual dividend income. Because I had no portfolio.
In order for me to go from $0 to $41.36 in annual dividend income, I had to go to work, save my hard-earned paycheck, and invest $1,181 into dividend growth stocks yielding 3.5%.
Investing $1,181 at a 3.5% yield gives you that $41.36 in annual dividend income.
Yes. I once had to invest almost $1,200 in savings to get the same outcome as I now get without lifting a finger.
Said another way, a $41.36 increase in my annual dividend income through dividend raises by my holdings is analogous to me investing almost $1,200 into stocks yielding 3.5%.
Both arrive at the same outcome. But one is much, much easier.
The difference, of course, is compounding. It’s money making more money. Money can clone itself. And the more it does so, the bigger and better this process becomes.
This is the incredible power of dividend raises.
I’m now able to experience the same increase in my passive income every month as someone else who’s just starting out and investing thousands of dollars. But I did nothing other than hold my stocks. I woke up to “pay raises” without lifting a finger. These are the easiest and biggest pay raises I’ve ever gotten.
And keep in mind, September 2020 was an off month for me. Most months provide a much larger increase in my annual dividend income.
However, I wanted to this message out there to inspire you. Even when things aren’t firing on all cylinders, dividend growth investing is still amazing.
When things are firing on all cylinders, it’s otherworldly.
If my Fund gets, say, a $100 bump in annual dividend income, that’s analogous to investing $2,857 in stocks yielding 3.5%.
Yep. That kind of increase in my annual dividend income is like someone else just starting out and investing a back-breaking 3 grand.
It does take time to get to this spot. My FIRE Fund is worth hundreds of thousands of dollars. It wasn’t built overnight. It took years of my life, along with blood, sweat, and tears.
But now being in this position, I can tell you that it was worth all of it.
Dividend growth investing is a fantastic strategy.
And the incredible power of dividend raises is a big reason why.
— Jason Fieber
P.S. My six-figure portfolio, which I call the FIRE Fund, generates enough passive dividend income for me to live off of. It allowed me to retire in my early 30s. I’ve made my portfolio entirely accessible over at Patreon – and I post alerts there whenever I buy or sell a stock. I put my money where my mouth is and am often invested in the same high-quality dividend growth stocks that I write about. Over the years, I’ve heard from thousands of investors who have been profiting from many of the same exact stocks I own. So if this sounds like something you think you could benefit from as well, check out my portfolio and start getting my buy and sell alerts.
