I’ve written many times about the benefits of dividend growth investing. When you look at a concept like compounding interest, there’s many different ways to achieve the same end goal. However, dividend growth investing gives you the best possible way.
For one, dividend payments provide compounding by increasing the number of shares held every year through reinvestment. So, a stock held for a long time will compound the interest received simply because there will be more shares from previous reinvestment.
As long as the company continues to pay the dividend, which most do, then the interest received from dividend payments will increase with an increased number of shares.
In addition to that, dividend growth stocks provide compounding interest through the growth of the dividend payments from year to year.
Not only do most dividend paying companies continue to pay their dividend every year, but many of the high performing dividend payers succeed in increasing their payouts every year, to a point where they reach consecutive years of dividend growth.
Dividend Growth Investing Success
10, 25, and even 50 years of consecutive dividend growth are markers of this achievement in a group candidly called dividend aristocrats. These businesses have been successful in achieving the ultimate goal of a corporation, which is to return money to shareholders.
They’ve also succeeded in doing so throughout many economic recessions, bear markets, and economic and global crises and panics. The dividend aristocrats epitomize the best vehicles for rapid compounding of wealth through a stock market investment.
It’s the dividend aristocrats like Coca Cola, Walmart, and Altria who’ve created the inspirational examples of what a small amount of money can become over a long period of time. I’ve written about this many times before, with simple examples showing how a small sum like $10,000 can compound into millions through the right dividend growth companies.
To be sure, not every stock will become a dividend growth investing success. Some of the weaker businesses face a stagnation, suspension, or outright removal of their dividend when hit with tough times.
That’s to be expected, which is why we must combine such an investing strategy with other prudent principles such as value investing and diversification. It’s completely fine to be wrong sometimes, and we don’t even have to be right most of the time. As the examples have shown, it could take just one superb investment to create decades of high-yield, consecutively growing dividend payments.
As dividend payments grow each year, the share price inevitably follows. This double upwards movement multiplies our returns and creates the exponential growth magic of compounding interest. It’s no doubt a much faster and efficient way to utilize compound interest.
The higher share price makes shares accumulated through reinvestment even more profitable, and will continue to do so as long as dividend payments increase. Hopefully you can see why I get so excited about this.
Now that we’ve prefaced the allure of dividend growth investing, I want to help you actually achieve it.
I personally have been pursuing this topic for several years now, and while I’ve seen initial success I know the real fruits come with patience. That said, in the process of researching many companies over several years, both my methods and tools have evolved. I’ve stumbled across many different resources, and these are my absolute favorites.
Bear in mind that your strategy might vary from mine. You don’t have to use every single source, but even one of these can help make a difference in your long term goals. I hope to make that the case.
I see this as if we are all in this together. Your getting wealthy doesn’t negatively affect my life in any way. If anything, your prosperity will undoubtedly create positive results in my life in one way or another.
Feel free to add any of your favorite resources in the comments below, so that we can all benefit. And of course, if you want to know more about my methods and investing strategies, they’re always available to those who subscribe to my free mailing list.
Now, here’s the 4 free tools I use for researching my dividend growth investing stocks.
DGI Investing #1: Dividend.com
Whenever I am specifically checking the dividend component of a stock, the first place I go is dividend.com. There’s a myriad of metrics to look at, but the one I focus on here is “years of consecutive growth”.
To be sure, past performance doesn’t guarantee future results. However the prerequisite for a company with 20 years of consecutive growth is 10 years of consecutive growth, and to get to 10 years you must first hit 5 years, and on and on.
While we can’t predict the future, we can use past data to improve our chances. A management with a track record of consecutive growth on its dividend payments is most likely to reinforce that reputation.
So, I’ll look for a number of at least a couple of years, with anything over 5 years being very appealing. A stock getting close to a milestone, such as 10 years, 25 years, or 50 years, might be worth looking at as well… the increase of publicity from achieving such a milestone is likely to bump the share price a little higher.
DGI Investing #2: Nasdaq.com
The second resource for evaluating dividend growth investing stocks is nasdaq.com. Here, you can find a list of past dividend payments, including the upcoming dividend ex-dates.
The ex-dates are useful if you have several companies you want to invest in, but don’t know what order to do it. For example, if I have two stocks I want to buy but one has an ex-div in February and one has an ex-div in March, it’s probably a good idea to buy the February on February and the March in March. Why not take advantage of the dates.
This website is also useful if you want more in-depth information about the dividend history without having to pay money to use the features at dividend.com. Here you can look at exactly how much was paid each quarter, with previous ex-div dates and payment dates.
DGI Investing #3: StreetInsider.com
The third resource is one I found recently, and is particularly helpful for measuring growth. You can enter a ticker symbol at Dividend Insider and instantly see not only the dividend history, but the growth percentages YOY (year over year).
This is a quick and effective way at seeing how much a company is growing their dividend every year. Obviously, a company that is averaging 20% yearly growth of their dividend is much more preferable than one averaging 5%.
Use this resource to check many of your dividend investing ideas, and you’ll soon get a feel for growth averages and if they appeal to each scenario. Keep in mind that the starting yield will also have an impact on how valuable growing dividend payments will be in future, so you need to measure the growth with the starting yield.
In some cases the higher yield will be better, and in some cases the high growth will be better, but it’s really up to the situation and your goals. You can’t shortcut this step so try your best to crank out the numbers. I will say that there are instances where you can get the best of both worlds, you just have to be willing to look hard enough.
DGI Investing #4: Finviz.com
Finally, the last resource for finding great dividend stocks is the same resource I use for finding stocks in general, and that’s finviz.com. This is a free stock screener that lets you instantly sort through thousands of stocks in seconds.
Once you have some basics about value investing and valuations down, it will be at this point that you use that knowledge into the screener. This screener will take out the hard work of manual sifting and organizing, while still finding you the stocks you are looking for.
Like I said, I share my stock selection strategy to my subscribers, so be sure to jump in if you want to find out more. I even share the exact FINVIZ screen I use in one of my emails.
There you have it. Take the free resources and use them.
Maybe one day I could be interviewing you about your dividend success story.