There is a certain magic in growing your own crops. You fertilize the soil, plant the seeds, and hopefully pick the fruits that the plants produce. But, gardening should only be for people with patience. There is no fast way to start a crop-producing garden.
Welcome to the world of Dividend Growth Investing or DGI. For those with the patience, you can earn capital appreciation and an exponentially compounding income from your stocks.
Dividend Growth Investing is more than investing for dividends or investing for income. DGI consists of using the power of blue-chip stocks, compounding, dividends, and time to build your wealth.
Build the Mindset of an Investor
The magic of DGI lies in its simplicity. You can pick 10-20 blue-chip stocks (I have a list of my favorite 24 here) and simply put the dollar-cost-average method into full motion. With today’s amazing investing apps, like STASH, it has never been easier to create a DGI portfolio.
DGI consists of four distinct methods to build your wealth; capital appreciation, dividends, dividend growth, and dollar-cost-averaging. Let’s explore these further.
Capital Appreciation. Most people invest for capital gains. With DGI, you expect modest capital appreciation over time. McDonald’s isn’t going to double in price in one year. However, with the rising dividend, the value of McDonald’s also rises.
Some of our DGI stocks will appreciate more than others. The magic in DGI is to pick older, slower-growth companies (like AT&T) that pay a higher dividend AND younger high growth, low-dividend companies (Like Ally Bank).
Eventually, you want your younger companies to become your senior ones, and then you can add fresh companies. It is an amazing game that keeps life exciting.
Dividends. Dividends are a portion of the company’s profits. Some growth companies don’t pay a dividend, instead opting to reinvest the money back into the business. We want our returns in hand—irrevocable returns.
Boring Investing is Good Investing
The magic of dividends is that they can help you live your best life. Investing in blue-chips stocks will grow your money while also paying you an income. Who can ask for more?
We need to diversify our DGI stocks by sector and dividend yield. We don’t have too many high yielders (over 4%) or low yielders (under 1%). A good dividend yield average for a portfolio is roughly 2.5%.
I have a DGI portfolio and also an income portfolio. Knowing the difference between investing for income and DGI is vital to picking great stocks. For my income portfolio, I pick high-yield products like REITs, preferred shares, and Closed-End funds.
You do not want to use DGI with a higher yield, higher-risk stocks. The higher yield stocks in my DGI portfolio are AT&T (T) and Altria (MO). Then I have a couple of medium yielders like Prudential (PRU) and Phillip Morris (PM).
5 Benefits of Options Trading
The rest of my DGI stocks yield about 2.5%. These include T. Rowe (TROW), McDonald’s (MCD), and Johnson & Johnson (JNJ).
I also have some low-yield stocks that I hope will increase dividends over the years. These include Microsoft (MFST), Apple (APPL), and Costco (COST).
With DGI, you are in complete control of your portfolio. It is hard to go wrong by picking dividend aristocrats and dividend champions. However, getting some of the younger companies will pay off in the long run. The power of compounding is just starting with the young ones.
Dividend Growth. Dividend growth is a crucial component of DGI. Dividend growth is when the company raises the dividend to adjust for inflation and return more value to the shareholders. As you buy more and more shares, they will eventually pay more per share.
Not only that, the shares themselves will rise in value as well. You can see the power of compounding as all these things compound. Let’s look at a quick example of dividend growth.
Let’s say you bought 50 shares of XYZ company, and each share pays a quarterly dividend of $1.00. The first quarter you would receive $50.
Now, the company raises the dividend 5% a year. So, in year two, the dividend would be $1.05, year three $1.1025, etc. Our $1 dividend would grow to a $4.32 dividend in 30 years using our compound interest calculator.
Become CEO of Yourself
In the 30th year, our 50 shares would pay us $216. More importantly, if we were reinvesting dividends, we would have far more than 50 shares. See the magic!
Dollar-Cost Averaging. The final pillar of DGI is dollar-cost averaging. DCA is consistently putting the same amount of cash into our stocks, either weekly or monthly. I use the STASH app to put $5/week into my DGI stocks. Yes, the numbers move slow, but I can see the power of DGI already, and it’s only been two years.
DCA allows us to buy more stocks when the price is low and less when the price is high. Over time, we would be purchasing more when the price is low; therefore, we should come out ahead in the long run with DCA.
As much as we think we can time the market, DCA is the best method for the average person (us). With STASH, I slowly DCA into roughly twenty DGI stocks. When the company pays dividends, I reinvest them back into the company. I just repeat this until I die and leave it for my kids to continue.
Stocks vs. Cryptos
What are the uses of a DGI portfolio? Now we get into the fun stuff. After you build your unique DGI portfolio, what should you do next? Well, you enjoy the income.
In the end, you are building a DGI portfolio to grow your wealth and income. A DGI portfolio is similar to owning a rental property. You want the house value AND the rental income to appreciate.
There are many ways you can choose to serve your dividends. If we build a hefty $2 million dividend portfolio, we may receive $80,000/year from dividend income. We can choose to use some of that cash for expenses and some to reinvest.
You can also use some money to speculate into other growth stocks, cryptocurrencies, or invest in a business. You can even move overseas and live off your dividends. Once you have the income, you have the power of options.
Retirement Planning in Your 40s
Getting started with DGI. I am going to write an article describing how to get started with DGI. Meanwhile, you can read some of my articles on Stock Market Investing, Investing for Dividends, and How to Start Dividend Investing.
I am a DGI and Income investor. I have been attempting to separate the two because they are very different mentalities. DGI is more of a wealth generation tool. Income investing is more of a life/expenses tool. We will need both, one to pay expenses and one to grow wealth.
I hope you found this helpful. Don’t worry if you do not fully understand everything; there is still much to learn. I have been at this for over two years, and I learn something new every day. Keep reading my works and other books, of course. An excellent book to read is “How to Retire on Dividends.”
That’s all I have for today. Thanks for reading. Please grab some of my free PDFs on the way out. Also, follow me on Twitter for the latest Passive Income PDFs. I want to be the number one source of free content on the web! Enjoy and Happy Investing.
- PDF of the Month: Don’t Gamble with Retirement 3+4 (696-Page Free PDF)
- Free PDF Downloads: Download FREE PDF books here (Twitter Link)
- Financial Mindset: Become CEO of Yourself (book)
- Retirement Planning: Don’t Gamble with Retirement 4 (Free PDF)
- Investing: The Pros and Cons of Dividend ETFs (Free PDF)
- Cryptocurrencies: The Magic of Cryptocurrencies (Free PDF)
- Real Estate: Real Estate is a Mindset (Intermediate) (Free PDF)
- Business: Retire Rich, Retire Comfortable with a Business 2 (Free PDF)
- Everything!: The Biggest Book on Passive Income Ever! (book)(Web Edition)(Art Edition)
- I bought a Kindle Oasis: Check it out Amazon
- Read My Books for Free: Free Kindle Books Schedule
- Sign up to Access our “Hidden” Free Kindle Book Schedule
- My first Children’s book: A Child’s First Book on Passive Income (book)
- Book Reviews: 54 Takeaways from 54 Books (book)
- Want to Build Passive Income from Books and Affiliate Marketing? (Learn here)
- Writing: Can Grammarly Make You a Better Writer? (direct)
- My Favorite Chromebook: The Ultimate Chromebook (direct)
- Follow us: On our Facebook Page and Join our Facebook Group
- Amazon Author Page: Check out my author page on Amazon
- Monthly Dividend Planner: Check it out on Etsy
Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
Leave a Reply