We all love to be in control, right? We want what we want when we want it. And the stock market gives us an unlimited amount of choices—almost too many.
I just finished my Stock Market Investing at Any Age Series (20s, 30s, 40s, 50s, 60s, 70s), where I discussed the importance of dividend growth investing to your retirement.
But, how do you go about picking 10-20 companies that will eventually set you free from the workforce? Will these companies even survive 20-30 years before you retire?
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The number of dividend-paying companies can be daunting to investors of all backgrounds. Do you have the time and capability to choose solid companies? Can you follow those companies for the next 20-30 years?
Luckily, the market gives us options to invest in dividend-paying companies without picking them individually. In those cases, we can use dividend ETFs to build wealth, compound interest, and grow our income. But can you do better all by yourself? Let’s find out.
What is dividend growth investing? Dividend Growth Investing (DGI) is the process of investing in dividend-paying stocks over a long period.
However, DGI has an intense focus on companies that consistently and continually raise their dividend payments at least annually.
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The “four principles of DGI” are: dollar-cost averaging, dividend reinvestment, share price appreciation, and dividend raises. Please read the article to dive deeper.
Let’s take one of my DGI portfolios, for example. I have $71,277 in my Cash App portfolio, which pays me between $400 to $500 depending on the month.
I have invested $64,031 in the portfolio and have unrealized gains of $7,246, making an 11.32% gain. Let’s review the November months over the last five years.
As you can see, I went from earning $3 in November 2020 to $479 in November 2024. What a fantastic ride! It will continue as long as I invest new capital and reinvest my dividends.
The Magic of Dividend Growth Investing 2
Some of the major players in my November months are AT&T (T), CVS (CVS), Verizon (VZ), British American Tobacco (BTI), Abbive (ABBV), Blackstone (BX), Kinder Morgan (KMI), Antero Midstream (AM), and Omega Healthcare (OHI).
These are some truly extraordinary companies, but they have all encountered some snags along the way. I just kept investing through the turmoil, reaping the rewards of fantastic dividend payments.
I read articles on SeekingAlpha to select each of these companies. After I choose them, I continue to follow them. I spend about one hour a day catching up on stock market news.
Dividend growth investing through an index. But you may not have that much time to dedicate to picking and following stocks. You also may not feel comfortable allocating various amounts to different stocks.
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The entire process can “feel” intimidating from the outside looking in. But don’t fret—you can still achieve dividend growth investing results through a Dividend ETF.
Most dividend ETFs follow an index that the company creates to track certain stocks. The index has specific criteria for which stocks are most likely to be included.
Once a stock is in the index, the ETF also has certain allocation limits to ensure that one stock doesn’t dominate the entire index.
You must research each dividend ETF to see which one jives with you. My favorite dividend ETFs are Schwab US Dividend Equity (SCHD) and WisdomTree High Dividend (DHS).
These funds have different criteria, so they have different compositions—which is a good thing.It is crucial you understand how they passively pick their stocks.
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Sometimes these funds will outperform the general market (S&P 500 (SPY)), and other times they won’t. It depends on competition between growth and value stocks (something for another day).
However, the main goal is to pick a Dividend ETF and keep investing and compounding until you retire. If the ETF raises its dividend by 5-10% annually, you will be in great shape going into retirement.
Dividend ETFs vs. dividend stocks. Therefore, the single biggest question is whether you can do better on your own. Can you beat the dividend ETFs passive index?
I believe anyone who donates 1-2 hours a day to follow the stock market will outperform SCHD and DHS by a large margin.
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However, the individual stock picker is taking much more risk than the dividend ETF investor. I will give you an example.
I invested in Iron Mountain REIT (IRM) when it yielded around 8% (in 2020). However, the stock skyrocketed because data centers are crucial for artificial intelligence.
Now, IRM yields around 2% because the price shot up. I decided to trim some of my IRM stock to invest in CVS, which has recently been beaten down.
Will my risk pay off? Will CVS recover and keep increasing its dividend? Will IRM still keep shooting toward the moon? I have no idea, and I don’t really care.
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I made the best decision I could with the available information. IRM was up 300%, and CVS was down 50%, so I made a move. Individual stock pickers make choices like this quite often.
I am a buy-and-hold investor; however, sometimes exceptional circumstances arise. I must recognize these times and make decisions.
If you feel uncomfortable making these choices, investing in a dividend ETF aligns with your style more. You simply keep investing and reinvesting until you are wealthy.
SCHD has a track record of increasing its dividend by a large percentage over the years. Will this trend continue? Maybe.
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However, SCHD reshuffles its allocations each year to match the current market. Essentially, it trims IRM to add to CVS, like I did.
Setting your brokerage account on auto-investment using SCHD can consolidate your retirement planning. There is nothing wrong with this.
Conclusion. I love watching the market every day, following its ups and downs, and reading about the commodities, options, bonds, and stock markets at night.
If McDonald’s (MCD) drops because of an E. Coli breakout, I want to add more money immediately. If CVS struggles because of Medicaid payments, I want to add more money. I absolutely love the process.
I am trying to get the highest yield by buying at the lowest price. I then wait years for the price to recover and dividends to increase. Nothing gives me more satisfaction.
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If you don’t want to do any of this—don’t. There is no reason to pretend you love following stocks if you don’t.
I get memorized when I look at the composition of these dividend ETFs. I can’t believe I can get so much goodness by just hitting one button. It’s truly incredible to have Johnson & Johnson (JNJ), Exxon Mobil (XOM), Pepsi (PEP), and Altria (MO) under one roof.
That’s why I continue to purchase Dividend ETFs alongside my dividend stocks; I love getting the best stocks in one product. It’s simply incredible.
Therefore, the final tally is this: If you love the process and can donate 1-2 hours a day to the stock market, choose individual stocks.
If you want all the stocks under one roof—that continue to repackage themselves—go with dividend ETFs. Or, like me, you can invest in both. Good Luck!
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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
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