10 Awesome Things About Dividend Growth Investing

There are a lot of different ways to invest. My favorite way? Easy. Dividend growth investing.

This is a long-term investment strategy whereby you buy and hold shares in world-class enterprises that pay reliable, rising dividends. I started using this strategy for myself in my late 20s.

And what did it do for me? It helped me to go from below broke at age 27 to financially free at 33.

By the way, I explain exactly how I achieved financial freedom in just six years in my Early Retirement Blueprint. If you’re interested, you can download a free copy of my Early Retirement Blueprint here.

So why is this strategy so great? Well, that’s what I’m here to talk about. Today, I want to give you 10 reasons why dividend growth investing is awesome. Ready? Let’s dig in.

The first reason is the way the strategy tends to automatically funnel you right into great businesses.

Generally speaking, only great businesses can pay out ever-higher dividends for decades on end.

You can’t run a terrible business while simultaneously consistently racking up ever-more profit, which is necessary to consistently fund ever-higher dividends. That’s why high-quality dividend growth stocks are often limited to only the best businesses in the world. And if you’re going to live off of growing dividends, that quality and consistency is exactly what you’d want from your passive income. You want consistency and predictability, which can be found with quality.

This leads me to my second reason. A lengthy dividend growth track record is a fantastic initial litmus test for business quality.

If a company has increased its dividend for 20, 40, 60 years in a row, that’s a pretty good indication that it’s a high-quality enterprise.

While an impressive track record for paying out growing dividends is far from the only aspect of quality, it is a way to quickly “check under the hood”, if you will. Since you have to do a lot of things right as a business in order to be able to routinely grow profit for decades on end, which funds those increasing dividends, this can build some initial confidence in a company’s level of quality.

And this goes right into the third reason. You tend to exclude low-quality businesses from your portfolio.

If you’re investing in high-quality businesses, that means you’re not investing in low-quality businesses.

This might seem intuitive, but it’s an important distinction to make. Charlie Munger, Warren Buffett’s right-hand man at Berkshire Hathaway, has always stressed the importance of inversion when problem solving. That means flipping a problem upside down, looking at it backward, and figuring out how to avoid the wrong answers, which can lead you to the right answer. When I think about how to avoid poor long-term investing results, avoiding low-quality businesses is a pretty good way to accomplish that.

Fourth? Nothing beats the passivity of dividends.

There is no other source of passive income that has the passivity of dividends.

Lots of different sources for passive income out there. But there are degrees of passivity. And in terms of waking up to new money without lifting a single finger, I don’t know how you beat dividends. I own shares in more than 100 companies. And I get dozens of dividend payments every month. What do I do to collect these dividends? Absolutely nothing, other than to continue holding stock. No work to perform, no quota to fill, nobody to call. Can’t get any easier than that.

The fifth reason why dividend growth investing is awesome? You’re literally paid to buy and hold stock.

Want incentive to own stock in a company? How about getting paid to do so.

That’s right. Human beings respond to incentives. And what’s a bigger or better incentive to continue holding stock, to your long-term benefit, than routinely collecting cold hard cash? And not just cold, hard cash. But cold, hard cash that’s growing year in and year out? I mean, it’s almost like these companies are paying you to remain patient and succeed alongside them over the years to come.

My sixth reason? The compounding power of reinvesting growing dividends.

Reinvesting growing dividends back into more stocks paying growing dividends can supercharge your long-term investing success.

If you buy stock that doesn’t pay any dividends, you’re at the mercy of the market. You’re not paid to be patient. Instead, you have to wait and see if that stock goes up over time. But with high-quality dividend growth stocks, you’re able to collect growing dividends and then plow those cash payments right back into more shares that are paying – you guessed it – growing dividends. It’s growing dividends buying more growing dividends all by themselves. It’s like a money cloning machine at your disposal. Except it’s even better than that, because the cloned money continues to grow in size due to compounding.

That leads me right into the seventh reason. High-quality dividend growth stocks tend to outperform the market over the long run.

This isn’t a surprise. What should outperform over the long term? High quality or low quality?

Of course high quality. Hearkening back to what I noted earlier, dividend growth stocks tend to be high quality by their very nature. And as Ned Davis Research has shown, Dividend Growers & Initiators vastly outperformed the market over the last 30+ years. This is like having your cake and eating it, too. Because most high-quality dividend growth stocks offer yields greater than the S&P 500’s lowly 1.3%. So you could be getting market-beating income and market-beating performance.

The eighth reason dividend growth investing is awesome? You’re able to fight – and beat – inflation.

That’s right. You can potentially beat both the market and inflation with this strategy.

Inflation is like an invisible tax that makes everything more expensive over time. Well, many high-quality dividend growth stocks are growing their dividends at inflation-beating rates. Annual inflation has historically run in the low-single-digit range. Meanwhile, a lot of dividend growth stocks that I invest in and feature right here on the channel are growing their dividends at double-digit annual rates. That means your purchasing power can keep up with, or even exceed, inflation. And if you’re going to live off of dividends, that’s music to your ears.

My ninth reason is that high-quality dividend growth stocks are akin to golden geese.

These stocks are like the golden geese that lay ever-more golden eggs.

That’s right. You don’t have to slaughter the golden geese – a.k.a., sell stock – in order to feed yourself. You can live purely off of the ever-larger pile of golden eggs – a.k.a. growing dividends. If you build a large, diversified portfolio of high-quality dividend growth stocks, it’s like having a giant gaggle of golden geese that’ll provide you with ever-more sustenance in your life. Who wants to slowly sell off their stock in order to produce income, not knowing if a market downturn is coming up or even how long they’ll live? Why risk running out of money when you could just live off of the income alone?

The last reason? These stocks actually tend to be less volatile than the broader market.

Market volatility making you queasy? High-quality dividend growth stocks could be just the medicine you need.

Because high-quality dividend growth stocks are often blue-chip, world-class businesses, their beta – a measurement of a stock’s volatility relative to the market – is usually low. This means they fluctuate less than the market. Now, I don’t fear volatility myself. I actually see short-term volatility as a long-term opportunity. However, it’s also easy to understand why some investors prefer a, shall we say, smoother ride. Well, many high-quality dividend growth stocks, because of frequently low beta, can offer you a less bumpy trip to the promised land of passive income, wealth, and freedom.

— 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.