Dividend Growth Investing Tips That Shouldn’t Be Forgotten

The following is a guest post. 

“Someone’s sitting in the shade because someone planted a tree long time ago” – Warren Buffett, American business magnet and investor.

Analysts suggest that when it comes to investments, long-term portfolios or those who wait at least 10 years to see a return have more advantages over those portfolios filled with short-term opportunities, such as mutual funds, growth stocks, and even bonds. Thus, many investment resources will always recommend diversifying investment portfolios with high-quality dividend paying stocks, as it has been proven to yield high long-term returns and a reliable dividend income one can depend on until they reach their retirement age.

Again, this is for those investors who don’t need the cash immediately and would rather re-invest those dividends back to the company after a payout. If you are interested then here are some key benefits of long-term dividend paying stocks in your portfolio:

  • It can be especially rewarding, as it can make up roughly 45% of the total return if you re-invest
  • By the time you retire, you have a large number of shares which equate to more income
  • Dividends are less volatile than earnings over time
  • Companies that offer dividend stocks are generally established in their industries and are able to ride tough markets

However, there are critical tips investors must know when including dividend growth stocks in their portfolio. In this post, we will highlight some of the investing tips you need to consider when earning big payouts.

Focus on total return

A certain stock that has yielded high returns doesn’t determine its ability to produce better total returns. Total returns are dependent on the output of capital appreciation and dividend performance. However, don’t be dismissive in thinking dividend yields don’t matter – they do. The highest yielding stocks have the highest payout ratios, but it also means less money to re-invest and slower future dividend growth. The best way is to focus on total returns rather than high yields, as dividend growth is more centered towards future gains than the present.

Patience is a virtue

Expect patience to play an important role in your dividend growth investing strategy since your portfolio will not be as time sensitive as value investing or day trading. It requires you to hold your stocks for a long period of time, even during bear markets when values fall. During recessions, expect stock prices to fall, however high quality dividend growth stocks will continue to pay dividends. Take note that even businesses that generate solid returns annually create real wealth and success over long periods of time.

Famed investment guru Jeremy Grantham of GMO said, “Be patient and focus on the long term… Now all you have to do is withstand the pain as the very good investment become exceptional. Individual stocks usually recover, entire markets always do.”


Impatient investors will have a difficulty sustaining their portfolio, generating higher-than necessary frictional costs from taxes and brokerage fees. By quickly buying and selling, you will not be able to benefit from the compounding effects of high quality businesses.

Be risky for the right reasons

It’s not only patience that you need to exhibit, as investors also need to know when to invest and equally when to cut their losses, which are also the same traits exhibited by the best traders in the industry. To jump on the best opportunities the market has to offer, traders need to know their trading personality, or in your situation your investing personality. “How risky am I?”— This is the first question you need to ask yourself, as it will determine the kind of investing style you need to maintain. Dividend growth investing requires calculated risks and tends to heavily rely on instinct. Investors must be able to cut losses and let profits run. Although human psychology suggests that people tend to hang on to losses longer by securing their winnings, the best way is to pre-determine the amount of risk and the amount to profit to eliminate human emotion from affecting your decisions.

Lastly, learn to invest via adhering to a well set out plan of action, as dividend growth investing is best approached systemically. Include the dividend income you need to be independent and the investment method you need to follow. Hopefully, now you are ready to take your dividend growth investment portfolio to new heights. Good luck!

5 Replies to “Dividend Growth Investing Tips That Shouldn’t Be Forgotten”

  1. Some good points for DGI consideration. At the core, I index, but DGI is on my to-do-next radar. I actually did a second DGI buy recently. Just to learn and see

    1. Hey amber,

      I understand the attraction of index investing and wish, at times, that I could just throw money at an index and be done with it but there appears to be no proper ETF with consistent dividend growth.

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