What is Dividend Growth?

Holding dividend paying stocks is a time-tested investment strategy popular among investors. Investors love dividends because of the stable income stream and downside protection they offer.
​Three main characteristics that should define any good dividend investment strategy:
  1. Paying a reasonable dividend supported by sustainable earnings
  2. Having a reliable and growing dividend paying strategy
  3. Building a well diversified and liquid portfolio

Why Can Dividend Growth Yield better than 4%?

  • Dividend-paying stocks can play a vital role in helping investors meet their long-term goals by combining growth potential with current income. ​
  • ​With bond yields still at relatively low levels, dividend-paying stocks may be appealing to many investors who are seeking yield.
  • Corporations that consistently grow their dividends have historically exhibited strong fundamentals,​ solid business plans, and a deep commitment to their shareholders.
According to the information published by ThomasPartners at Charles Schwab, companies that increase their dividends have historically performed better than companies that do not as shown below.

How to Invest in Dividend Growth by Yourself?

Though techniques may differ slightly by dividend investors and asset managers, the basic dividend growth approach tends to utilize the following important stock selection criteria:
  • Building a portfolio of common stocks of great companies which have consistently increased their dividends each year for at least recent 5 to 10 years;
  • Diversifying across different industries and sectors so that your dividend stream isn't too reliant upon a single area of the economy;
  • Making sure the dividend growth is being supported by higher levels of real earnings and not financed by debt.
  • ETF Alternatives
  • ​High-Dividend Stocks
  • REITs
  • Rental Income Properties
  • The NASDAQ Dividend History provides a single page to review all of the aggregated dividend payment information.
  • StreetInsider.com provides easy access to check out any stock's dividend history.
  • Insider behavior matters because research based on real-time signals has shown that a properly modeled picture of insider actions can provide the most accurate reflection of the prospects for the company, industry, economic sector, or even the stock market in general, going forward.

Pros:

In the low interest rate environment we’re in today, many investors have been frustrated by the lack of yield bearing securities (like bonds or CDs). Dividend growth stocks can provide some reasonable income while also delivering price appreciation benefits for investors over the long term.

Cons:

Companies are free to reduce or eliminate dividend payments as they see fit, so the value of a dividend-paying stock can change over time. It’s important to monitor dividend payments closely. It is critical to check on the history of dividend growth and make sure the dividend is supported by good earnings.