With a lot of things in life, getting started is the hardest part. For instance, it's usually much harder for someone to go to the gym for the first time in five years than it is for someone to go to the gym for the 47th day in a row (even though just going to the gym once appears to be the 'easier' thing to do). Similarly, it's not asking a girl out on a date for the 5th time that's the hardest, but rather, the first. Likewise, with dividend growth investing, getting the regular investments going for the first time is often the hardest part.
For example, if you've already got a portfolio generating $3,000 in annual dividends, it's easy to stay the course and reinvest your dividends or pick new companies to plow thousands of dollars in monthly cash into. For every month that our friend generating $3,000 per month in dividends sits on his derriere and merely checks the "reinvest dividends" box on his brokerage account, he's probably baking an increase of $100 or so into his annual dividend stream.
But when someone is first starting out with dividend growth investing, it might be much harder to find the discipline and motivation to stay the course. After all, if you invest $250 into Johnson & Johnson (NYSE:JNJ) each month for the next three years, you're likely going to be generating about $320 per year in dividends, or a little more than $25 per month. For some, this could be discouraging. But I don't see it that way.
So how do I think about it, from a psychological standpoint? Well, let's say I commit to investing $400 per month in the stock of Kimberly-Clark (NYSE:KMB). Once the purchase goes through, I would think to myself: I just bought $17.20 worth of annual disbursements of cold, hard cash that will get mailed to my house in four installments of $4.30, and this is probably going to grow by about 7% indefinitely (unless something goes wrong) while I make no further commitments. And when I make that $400 purchase the next month, I think the same thing. I'm now making $34.40 in annual dividends that will get mailed to me in four installments of $8.60 throughout the year. Now, I have $34.40 that will be growing at about 7% per year indefinitely. Wash. Rinse. Repeat.
For me, I think of dividend growth investing almost like it's a collection of little side projects that are each doing their own thing. For instance, let's say my goal for 2012 is to accumulate $5,000 worth of Pepsi (NYSE:PEP) shares. Throughout the year, I buy a total of 77 shares, which generate about $158 annually and grow by about 7-8% each year forward. Okay, now it's on to 2013. Let's say I plan on buying $5,000 worth of McDonalds (NYSE:MCD). While I'm focused on that, I have my Pepsi shares now generating $169 per year, and now I've got shares of McDonalds generating $144, which will probably grow its dividends by about 8-10% over the medium term. What's that you say, it's 2014, already? I think it's time to start building a position in Exxon Mobil (NYSE:XOM). As I start to gobble up shares of the petroleum giant, I've already got shares of Pepsi and McDonalds, working in the background, making me over $300 per year.
Now imagine if you did this for twenty years straight, accumulating shares in different companies each year, while your previous years' investments are working in the background, generating larger and larger streams of dividends. Slowly but surely, you're making your way. Charlie Munger once said, "Every day, focus on the task at hand, and do it well. Eventually, you'll get what you deserve." If you can have the discipline to add a few blue-chip companies to your portfolio each year, and if you can monitor your previous investments to make sure they're doing well enough to keep raising dividends annually, then each year, the end game of living off of your investments gets closer in sight.
This is the kind of thought process that I believe can put you in the position of one day reaping those $3,000 monthly dividend checks. Instead of growing weary that you're only generating $300 annually out of your goal of $36,000, break it up into smaller pieces. King Solomon once said, "Do not despise the day of small beginnings." Alexander the Great didn't just wake up one day with a million man army. He added to his military soldier by soldier, phalanx by phalanx. Likewise, if you can steadily add several hundreds of dollars each year in dividend income to your blue-chip holdings, then maybe one day you can have a million dollar army of little green George Washingtons, ready to be deployed at your command.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.