Why Dividend Growth investing has exploded in popularity.
Investing websites like Motley Fool and Seeking Alpha are loaded with Dividend Growth Investing articles. There is now a cult like obsession with this investment strategy. If you mention “DGI” to a fellow believer you will likely get an exciting response. There is more than one way to skin a cat. No two Dividend growth investors are exactly alike but many share a common investment objective - invest in stocks with consistently rising dividends and one day be able to live off the income.
So why has dividend growth investing exploded in popularity? Here are some explanations.
Simplicity – It is a powerful message that is very easy to understand. If you buy a stock you are a part owner of the company. Your company earns profits. Your dividend is your proportionate share of company profits.
Baby boomers retiring – Dividend Growth Investing is a viable strategy for people of all ages. With that said, DGI is especially popular with the growing number of people at or near retirement. Don’t let that deter you if you are young and just starting out. Einstein said that compound interest is the 8th wonder of the world. Your time – your long life ahead of you - is extremely valuable in building wealth.
Income – Fixed Income yields are at historic lows. If you want a 3.2% yield on your money you can choose to buy a share of JNJ or you can lend money to Uncle Sam for 30 years. Technically it’s a little more complicated. As of 2/26/13 you’d only be compensated 3.08% on a 30 year treasury and your true yield is dependent reinvesting at the same rate. Plus JNJ is AAA rated while the US government is not. Your JNJ dividend is also likely to increase over time.
Privatization of Retirement – “In the old days” you worked at the same company for 30 years. When you reached a certain age they provided you with a pension. In the 80’s that changed in a big way. Now people are more likely to job hop, retirement plans are more portable, and more people are managing their own money.
Retirement focus – Forget 4% withdrawal rates or other rules that eat into principal. DGI has a simple goal – at some point your DGI income will be able to fund your living expenses. Maybe it already does. As long as your dividend growth stocks continue to perform your portfolio can last into perpetuity.
You add up all the reasons and you can literally see the DGI movement growing on these very pages. People are sick and tired of seeing their investment accounts rise and fall with nothing to show for it. You don’t need pay hefty commissions. You don’t need to buy crazy companies you’ve never heard of and that you don’t understand. No pressure sales. It all makes sense. Dividend Growth Investing continues to grow in popularity and is here to stay.
Disclosure: Author is long JNJ