I want to share with you why I chose to be a dividend growth investor. I made this decision back in early 2010..
This decision was based around a clear objective. I wanted to become financially independent and retire by 40 years old. At the time I was almost 28 years old. So I gave myself about 12 years to make it happen.
Now, there are a lot of investing strategies I considered and could have used. But I ultimately saw dividend growth investing as the best strategy to get me to the promised land. And I must say, it worked out much better than I expected.
So much better, in fact, that I accomplished my goal seven years early. That’s right. I achieved financial independence at only 33 years old. I now collect four-figure passive dividend income every single month without lifting a finger. I get paid just to exist, which is amazing.
This strategy has served me well. And I believe it can serve you well, too.
I want to share with you five reasons why I chose to be a dividend growth investor and why I think it’s the perfect strategy for becoming financially independent and retiring early.
Let’s dig in.
DGI for Me Reason #1
The first reason is perhaps the most important reason.
Dividend growth investing provides an investor with passive income that’s reliable.
If you’re going to live off of investment income in lieu of job income, you need to make sure that income is extremely reliable.
Because guess what’s reliable? Expenses. The costs of life are very reliable.
The costs to shelter yourself? Yep. That’s reliable. Food? You have to eat, so that’s very reliable. So on and so forth. Just being alive incurs reliable expenses. And you want to make sure your passive income can counteract that.
Let’s talk about reliability. How about decades of reliable dividends?
Well, that’s what you get with many high-quality dividend growth stocks. Some of them, like Coca-Cola (KO) and Procter & Gamble (PG), have been consistently paying out dividends for more than a century. Since 100 years exceeds an average human lifetime, I see that as very reliable.
DGI for Me Reason #2
The second reason is this: Dividends are as passive as it gets. There’s no other form of passive income that has the passivity of dividends.
Once you own stock in a dividend-paying company, you don’t have to do anything else in order to collect that dividend in perpetuity. It’s a one-and-done that you’ll find almost nowhere else.
Rental properties? Not even close. Online businesses? No way.
I’m not saying there aren’t a lot of fantastic ways to make a lot of money. But when it comes to pure passivity, dividends take the cake. You literally get paid while you sleep. Can’t beat it.
DGI for Me Reason #3
The third reason is that it forces you to invest in only the best businesses. Dividend growth investing acts as a filter, weeding out a lot of poor business models.
See, a growing dividend is a litmus test for two things. First, it shows you which businesses can afford to pay a growing dividend. Second, it shows you which companies value their shareholders enough to share with them their fair share of growing profit. It’s about both wherewithal and willingness.
When you own stock in a company, you’re a part-owner. The profit that business makes is technically your profit. So don’t just tell me how profitable you are. Show me. Show me the money.
If you can’t afford to pay a dividend or don’t value me enough to give me my rightful share of profits, I’m not interested.
DGI for Me Reason #4
The fourth reason is right in the name of the strategy. It’s dividend growth investing. The “G” in DGI stands for growth.
Passive income is wonderful. But it isn’t so wonderful if it’s not growing.
That’s because those reliable costs of life I mentioned earlier are also rising. Again, expenses like shelter and food are going up all the time. This is due to inflation. You need to make sure your passive income can offset inflation.
Well, many high-quality dividend growth stocks are increasing their dividends at a rate that’s faster than inflation.
What do dividend growth stocks like Accenture (ACN), L3Harris Technologies (LHX), and Sherwin Williams (SHW) all have in common? They all have a 10-year dividend growth rate that’s well in excess of 10%. With inflation in the low-single-digit range, these stocks are inflation busters.
My personal portfolio has over 100 dividend growth stocks in it. I can’t tell you how awesome it is to receive 10-15 dividend increase “pay raises” every single month.
And these dividend increases can cumulatively add up to much more income growth than I ever saw at my old day job. Better yet, these “pay raises” come without me lifting a finger.
I used to have to show up early, stay late, and work really hard to get a pay raise at my old day job.
I’ve seen my expenses rise over the years. But I’ve seen my passive income rise much, much faster because I’m invested in businesses that are growing their dividends much faster than inflation.
DGI for Me Reason #5
The fifth reason? Dividend growth investing tends to beat the market over the long run.
Now, let me be clear. My main goal was always to become financially independent at a young age. Beating an index or another investor wasn’t my motivation.
However, while I’m not specifically gunning for outperformance, I definitely won’t turn it down if it comes my way.
Fortunately, outperformance is exactly what dividend growth investing can offer.
Per Ned Davis Research, Dividend Growers & Initiators provided returns that trounced the returns of Dividend Non-Payers between 1973 and 2020.
After all, reinvested dividends account for the vast majority of the S&P 500’s total return over the last five decades.
Between 1973 and 2020, per the aforementioned research, Dividend Growers & Initiators turned $100 into over $11,000. An equal-weighted S&P 500 turned that same $100 into less than $4,000.
If you’re aiming to achieve financial independence and even potentially retire early, I implore you to consider taking advantage of the dividend growth investing strategy like I have.
I can’t guarantee you the same results that I’ve experienced, but these five reasons clearly show you why dividend growth investing might just be the perfect long-term investing strategy, especially if you’re chasing after the same goals I chased after.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
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