Dividend growth investing is a popular strategy among long-term investors who are looking to balance income and capital growth and with that also grow income. My style of investing mostly resembles that of a dividend growth investor, I may have some holdings that deviate from this, but the majority of my portfolio revolves around dividend growth investing. This approach involves investing in companies that have a history of increasing their dividends over time. We will be discussing the top 5 reasons why dividend growth investing can be a useful strategy. From income streams to inflation hedges, we will explore the many benefits of this approach to investing.
Income: The dividend growth investing approach allows investors to receive an income stream through regular dividend payouts. This can be particularly beneficial for investors looking for a steady source of income for now or in the future. Overall, receiving income quarterly and seeing this income grow over time can be very satisfactory.
Capital Appreciation: Dividend growth stocks have the potential to appreciate over time this can provide a source of growth in addition to the income generated by the dividends. Historically, many companies that were able to grow their dividends over time, were also appreciated in share price. And with that, if we are trying to live off the dividends rather than selling stocks we don't need to cannibalize our holdings as such.
Quality: Companies that pay dividends that grow over time are often financially stable companies and have a track record of increasing earnings. This can be an indicator of a company with a robust business model. There are certainly some exceptions and should be evaluated on a stock-by-stock basis. There could even be some instances that some business models that have been historically performing well are now suddenly not as robust anymore.
Inflation: Dividend growth stocks can help protect against inflation by providing a growing stream of income that can offset the impact of rising prices. This all has to do with the ability of companies to increase dividends and income as such. If the yearly increases outpace inflation, then it is a hedge against inflation.
Low Volatility: Dividend-paying stocks tend to be less volatile than non-dividend-paying stocks, which can help to reduce the overall risk of a portfolio. This may not be always the case but in times of uncertainties, companies with robust financial and business models tend to perform better than companies that don't necessarily often have the same stability overall.
In conclusion, Dividend Growth Investing is an approach that can provide income, the potential for capital appreciation, low volatility, quality companies, and inflation protection, It is an attractive strategy overall and is certainly one that is close to my heart.
Disclaimer: I am not a financial advisor, this blog is centered around my opinion and should not be viewed as legal, professional, or financial advice
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