Why Organic Dividend Growth Matters

Jul. 07, 2014 3:10 PM ETGE, GIS, JNJ, STT, UL12 Comments
Dividend Growth Investor profile picture
Dividend Growth Investor
21.04K Followers

Summary

  • The goal of every dividend investor is to have an active plan in service that will allow them to reach the dividend crossover point.
  • Investors can rely on new contributions, the compounding power of dividend reinvestment and on dividend growth from their positions to achieve their objectives.
  • Organic dividend growth is very important because the internal compounding results in lower needs for capital to be put to work.

The goal of every dividend investor is to have an active plan in service that will allow them to reach the dividend crossover point. This occurs when dividend income exceeds annual expenses for the first time. In order to achieve this, investors can rely on new contributions, the compounding power of dividend reinvestment and on dividend growth from their positions. Over time, these three powerful forces will be able to propel the passive income of our investor until they reach their goal. However, I think that investors need to also asses their portfolios at least once - twice per year at the very least.

Investors need to continually stress test their portfolio assumptions, in order to gauge whether their dividend machine can live up to its full potential in retirement. Investors need to understand if their portfolio would have produced increased income even if no new funds were added or if no dividends were reinvested. This is a very important step in dividend investing for retirement that would ensure that income is growing over time. Growing income is important, in order to maintain purchasing power of your dividend stream. For example, even if inflation was a low 3% per year, your purchasing power declines by 20% in year 7, 40% by year 17 and over 50% by year 24.

My expectation is that my dividend portfolio will deliver a six percent annual dividend increase, without adding any new money. For example, if I had a portfolio yielding 3% today valued at $100,000, I would generate $3,000 in annual income. If I add $6,000 to the portfolio in stocks whose average yield is 3%, I would have increased my dividend income by 6% to $3,180. Without new money, this income stream would lose purchasing power over time, which is a dangerous proposition in retirement. However, if the original stocks in this portfolio yielded 3%, but also grew distributions by

This article was written by

Dividend Growth Investor profile picture
21.04K Followers
I have been focusing my attention particularly to companies that regularly increase dividends to their shareholders for over a decade. I have also written about about dividend growth stocks on Seeking Alpha and my website for over a decade. I am mostly a buyer of high quality dividend stocks, with solid competitive advantages. My holding period is forever - for as long as the dividend is at least maintained. I tend to concentrate my efforts on stocks which grow earnings and dividends, which provides outstanding total returns over time. I only focus my attention to stocks with sustainable dividend payments. I am also a firm believer in diversification accross sectors and geographic locations. I am a patient buy and hold investor, who believes that having an investment plan, investing regularly per your plan, staying the course, and keeping investment costs low are the best tools in the arsenal for the individual investor.I share my thoughts on investing in dividend paying stocks that have consistently increased their payments over time and tips on growing my dividend income. I hope that my blog will serve as an inspiration for my readers and that it would change their financial lives for the better.

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