I have been following a dividend growth strategy for some time. The aim of the portfolio is to generate $50k per year in dividend income by 2018. For 2013, I am targeting approximately $27.5k in dividend income. This update summarizes portfolio progress year to date for 2013.

Source of Funds

I am using selective reinvestment of my dividend income from 2012 as my primary source of funding for new investments, in addition to excess disposable income from savings. In 2012, my portfolio generated approximately $25k in dividends. My current dividend income is being reinvested primarily in US stocks, with a focus on those companies that have a history of dividend increases.

New Investments to the Portfolio

The first quarter was a fairly busy time in terms of new investments to the portfolio. I made a number of new additions to the portfolio within the first few weeks of

There are many aspects of dividend growth investing that I value. These include the focus on companies with sustainable competitive positions, the ability to earn tax advantaged income and most importantly for me, the ability to achieve financial independence.

Not losing any of my investment capital is my Rule No 1. If I have my money in a business that is paying increasing dividends, it is also likely that the business is growing earnings and increasing cash flow. In order to consistently increase earnings and dividends over a long period time, it is highly likely that the business has some sustainable competitive advantage and unique value proposition. In my opinion, I'll have the best chance of preserving my capital if I have it sitting in a business with strong barriers to entry and good cash generation. Businesses like McDonald's Corp. (MCD), Coca-Cola Company (KO) and Procter & Gamble

In a previous article on Seeking Alpha, I had written of the benefits to younger investors of a dividend growth strategy in growing dividend income and wealth. This is a strategy that I am hoping to use myself to reach an early financial independence, with a near-term goal of $50k/yr by 2018 in dividend income.

In the article, I had suggested that younger investors have the significant advantage of a long time horizon to invest. This means that even some wide moat companies with smaller current dividend yield, but higher dividend growth should be suitable for younger investors to invest in. Younger investors can afford to wait for the dividends of such companies to be raised significantly over the years as these companies mature, and enjoy strong capital growth and total return in the mean time. This investment strategy could apply to companies such as Visa (V) and

I have been following a dividend growth investing strategy for a number of years now, which has allowed me to build up a steady stream of passive dividend income. My objective is to be able to add progressively to my dividend growth portfolio over the next 5 to 10 years with the addition of high-quality dividend-paying businesses to allow me to shoot for an accelerated financial independence in my early 40s through harvesting the dividend income from the portfolio. I am currently 36-years old.

Portfolio Objective: To achieve a dividend income stream of about $50,000 per annum from my portfolio of dividend growth stocks. This is the amount that I have determined will provide myself and my young family with expense replacement (rather than income replacement), which is really the focus of the portfolio.

I have determined this amount based on our current expense run rate, and by factoring

There are a few different ways to handle dividends that are paid out by companies. Taking these dividends in cash can be the easiest approach if one is in retirement or looking to live off their dividends. For everyone else, the question of how those dividends should be reinvested is a relevant one.

Automatic dividend reinvestment is a very common way to reinvest dividends. I consider this to be where an investor automatically invests dividends back into the dividend paying stock to purchase additional stock. Automatic dividend reinvestment can be a great way to accelerate wealth. Consider the example of an investor who had invested in McDonald's (MCD) 10 years ago. An investment of $10,000 in McDonald's without dividend reinvestment would be worth close to $66,000, and provide you with an annual dividend income of almost $1800. An investor who had reinvested McDonald's dividends back into McDonald's stock would have

The notion of a dividend growth strategy isn't something which should be considered the domain of only older investors. Younger investors can benefit from building up a steady, growing income stream over time which can allow for a nice income supplement, or even assistance with a significantly early retirement, if given enough time.

Starting with stable, well established, consistent dividend growth payers should be part of the core of any investor's portfolio. Having these dividend payers in one's portfolio will help provide some income stability to the portfolio, as well as stock price stability. These companies have developed strong competitive advantages and have generally been able to construct wide moats for themselves over many years. With very strong value propositions, they enjoy superior returns on equity and have been able to develop a long streak of paying and increasing their dividends. Most importantly, these larger dividend payers tend to

It's often the case that even the best businesses go through periods of transition as they adjust to structural changes in their business. While it can be tempting to cut your losses and move on as you observe a static share price year after year, the reality is that it can be worth your while to hang onto exceptional businesses with wide moats that are in the midst of transition as these businesses have proven track records and years of earnings increases that can suggest they can get their businesses on track. If these businesses happen to be dividend-paying businesses, you are actually getting paid to wait for these transformations to be completed and generating significant total return in the process.

Johnson and Johnson (JNJ) has been battling a number of patent expirations with some core drugs in its pharmaceutical business including Aciphex, Concerta as well

Some investors who hadn't thought of diversifying dividends may have been caught short by the events that took place in 2008-2009 where a number of companies drastically cut their dividends. A number of the dividend stalwarts that had previously increased dividends for many years such as Citigroup (C), Bank of America (BAC) and General Electric (GE) were all forced to make major cuts to dividends. The interesting thing about the dividend cuts that took place during 2008-2009 was that they were primarily associated with companies in the financial services sector. I read a very interesting article on Seeking Alpha by Robert Schwartz which indicated that 71% of dividend champions actually maintained or increased their dividends during 2008. Many of those that cut their dividends were actually financial services companies.

If you were unable to pick the impacts of the implosion in mortgage lending would have on bank dividends,

Conventional financial planning suggests that you should sell down capital to fund your retirement. I don't like this idea for a variety of reasons. More to the point though, with dividend investing, I don't think you need to touch your capital at all in retirement. Certainly, my aim is to be able to achieve financial independence solely from dividend income.

Financial planners often suggest to retirees that they should assume selling down 3-4% of their capital base (sometimes more) in retirement. This idea is bad for a few reasons.

Markets Crash

As we saw in 2008-2009, markets aren't always rational, and occasionally act like the world is coming to an end. A forced capital selling program can be potentially very negative to your retirement, because you are entirely at the whim of market pricing when you come to sell. A period like 2008-2009 is bad because you can decimate

Dividend Growth Investing is my preferred investment strategy. I've used this strategy extensively to build up my own dividend income stream over the years. However even more beneficial than the passive dividend income which I have been able to accumulate, a focus on dividends has enabled me to reduce several bad investing habits.

Avoiding buying high and selling low

Negative reactions from Mr Market typically send investors scurrying for the exits. During the depths of the declines in 2009, investors were abandoning stocks and heading for the safety of bonds and cash. Dividend stocks were not spared during the declines. Many of the most stable dividend payers, such as The Coca Cola Company (KO) and Colgate Palmolive (CL), also experienced significant declines. Coca Cola fell almost 25% during 2008, while Colgate Palmolive was down some 10%.

The declines in the stock prices of both companies were not indicative of

Many dividend investors are under the mistaken impression that a company which can pay an increasing dividend each year should be able consistently increase dividends indefinitely. Unfortunately not all dividend increases are created equally.

In order for a company to be able to consistently increase a dividend, it fundamentally needs to grow operating earnings and operating cash flow. An inability to grow either of these over an extended period of time will ultimately impact the ability of a company to increase its dividend to shareholders.

It is still possible for a company to increase its dividend for quite some period of time even though operating earnings growth has stalled. A business can decide that it is going to pay out an increasing amount of its earnings in the form of dividends and just reinvest less in the business. In such a scenario, I view dividend growth as temporary

Dividend growth investing has been my preferred method of investing for the last 10 years. I specifically want dividend growth companies in my portfolio rather than just dividend payers. These are the companies that can increase dividends over the long haul at least 5% per annum or more. There are 10 key things for me that make dividend growth investment my strategy.

Capital preservation - Not losing any of my investment capital is my Rule No 1. If I have my money in a business that is paying increasing dividends, it is also likely that the business is growing earnings and increasing cash flow. In order to consistently increase earnings and dividends over a long period time, it is highly likely that the business has some sustainable competitive advantage and unique value proposition. In my opinion, I'll have the best chance of preserving my capital if I have it sitting

I have a large portion of my dividend income sourced from international dividend stocks. While you can certainly get exposure to international markets by holding large, U.S.-based multinationals with foreign operations, your international exposure tends to be diluted by the often substantially larger U.S. portion of the business. In my view, there are several strong reasons to consider holding pure play foreign dividend stocks that can be invested in via ADRs (American Depository Receipts) or via stocks trading on the pink sheets.

1. The U.S. doesn't account for the full universe of opportunities. The U.S. is undoubtedly the dominant global market. Still, it only represents half of the global stock market by value. Excluding foreign stock markets effectively excludes close to half of the global opportunities that are available to you as an investor.

2. Exposure to stronger economic growth. The markets of the BRICs (Brazil, Russia, India,

The article explores some lesser known stocks for investors focused on dividend growth.

The key guiding principle I had in mind was to focus on businesses with strong economic moats and high barriers to entry. A business with defensible barriers to entry is invaluable. It's what creates the ability for the company to generate consistent earning growth over a long period of time. I'm after a business whose dividends can grow for years into the future, rather than those whose dividend growth may be peaking at present.

Criterion

I've picked criterion that focus on revenue growth (to indicate rising demand for the product or service), operating cash flow growth (to indicate cash production and ability to pay dividends) dividend yield, dividend growth and payout ratio.

1. Revenue growth exceeding 5% per annum over the last 5 years. Revenue growth is what drives a business. Without it, you don't have

I first started investing in my early 20s. Frankly, those initial years were filled with trial and error. The latest biotech tech stock, the fastest growing "small company" stock and the hottest thing in smart cards all made their way into my portfolio at one point or another. And after a 6 month period, they were all gone. Liquidated. Bankrupt.

Fortunately at that stage my investment size was very small, and my losses were minimal. But I was determined to find a better away. That was when I stumbled onto Roxanne Klugman's Dividend Growth Investment Strategy. The book promised a lot, and while its focus was on keeping retirement income doubling, I figured that it wouldn't hurt to keep my own current income doubling pre retirement so I could spend it now as well.

So I started implementing dividend growth investing in my mid 20s,

Microsoft (MSFT) has a dominant franchise in both office and Windows as well as strong free cash flow growth. Yet current trends leave me less certain about Microsoft's medium-term dividend growth prospects.

Core Business

Microsoft is a giant of the technology industry. The owner of the dominant Microsoft Windows and Microsoft Office franchises, Microsoft is a $225B company with more than $70B in annual revenue and 76% gross margins with net income of close to $17B.

The Microsoft Business Division (which is really the Microsoft Office franchise) actually accounts for most of Microsoft's revenue (close to 35%). The Server and Tools Business and Microsoft Windows Business are fairly close in terms of revenue contribution at almost 25% each. The entertainment division (think XBOX) and online services division make up close to 15% revenue between them.

The Windows and Office franchises have been dominant for lengthy periods of time.

The credit card processors, Visa (V) and MasterCard (MA), have been core holdings of mine for years (more so MasterCard). I am a big fan of their business models. Can they also be good dividend growth stocks?

Core Business

Visa is one of the major credit card networks in the world, along with MasterCard, Amex and Discover. Highly likely that somewhere in your wallet, you may have your own branded visa card that has been issued to you by your bank. Visa is an almost $130B business, earning close to $10.5B in revenue with 80% gross margins.

How does Visa make money? Each time a credit card or debit card transaction is processed on the Visa network, Visa charges the merchants who put through that transaction an assessment fee. This is basically a small percentage of the total transaction value.

On average, Visa keeps something like 0.2% of the average

Visa (V) is at the centre of a mobile payments explosion which is taking place around it. Rather than being negatively exposed to disruption from mobile payment trends, it is my view that Visa will be a long-term beneficiary of these moves. This will help drive additional payment volume, revenue, and growth not currently captured in the stock price.

The growth in mobile payment volumes will have two discrete components. The first and more important of these is the increasing acceleration of Mobile Point of Sale (MPOS) deployment. The second component is the deployment of mobile payment solutions and mobile wallets.

Mobile Point of Sale Solutions

The deployment of Mobile Point of Sales solutions represents a unique opportunity for the credit card networks to address payment volume that they would otherwise be unable to capture. Mobile Point of Sale terminals enable credit card payment acceptance by smaller merchants

The perception that dividend investing is just for retirees to pick up retirement income understates the value that dividend investing can have on your portfolio.

While you can certainly build up a good passive income stream with dividends and while it is no doubt beneficial to retirees, one of the best kept secrets of dividend investing is that it can create an sustained increase in your wealth as well. I didn't fully appreciate this till I read the Single Best Investment by Lowell Miller.

The fact that dividends provide a steady income stream is well known to most people. Either quarterly or semi annually, I get a cheque or direct deposit into my bank account that represents my entitlement to the cash flow that a company has paid out. For people looking for dependable cash flow streams, if you have a large well established company paying out dividends, there is