Dividend Growth Investing - Looking 30 Years Into The Future

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Includes: ATGFF, CNUTF, CVS, DUNDF, EXETF, GIS, LWSCF, RIOCF, SJR
by: PassiveCanadianIncome
Summary

When I first started investing in stocks, I focused on just dividend stocks with a decent yield and that I thought would go up in price in the coming years.

So far we have received $131.54 to our forward income from dividend raises alone in 2019.

With the 5% dividend growth rate, you would need almost 20 years to get the dividend raises the 8% one gets in 10 years.

Hey, everyone

Hope you all are having a great week. This morning I decided to try to look into the future and see how things would look. I got to say, things look pretty good and it was a neat exercise to do.

When I first started investing in stocks, I focused on just dividend stocks with a decent yield and that I thought would go up in price in the coming years. It's not a bad start and some stocks have done well, while others haven't. One thing keeps screaming at me and has changed my investing strategy the last year, and moving forward.

Dividend Growth Stocks are the way to go. Their stock tends to appreciate better with the bigger payouts and who doesn't like getting raises for doing nothing? So far we have received $131.54 to our forward income from dividend raises alone in 2019. Definitely, a nice bit of change and that number would be even higher if our whole portfolio would be dividend growth stocks.

My Portfolio Improvements

This is something I will be improving upon in the next month or two. While it sucks to be selling stocks as those trading fees add up, in the long term the move to a dividend growth stock portfolio would be a major improvement.

Stocks that I have that aren't DGI stocks are

I feel pretty confident about Shaw, RioCan and Dream Global REIT moving forward, while the others may be (or have been chopped) on the chopping block. Although CVS and General Mills have just frozen their dividend for the time being to pay down debt from acquisitions.

Ultimately, moving forward, I would like our overall portfolio to have a dividend growth rate of 5% or more a year. Of course in tough times this may not be realistic, but when you look at some great growth stocks they have been raising their dividend for over 40 years with a higher than 5% average growth rate.

Forward-Looking Charts

I decided to do a couple charts projecting what the future will hold in terms of future dividends. My goal for 2019 is to have a forward dividend income of $6,500, so I started the charts in 2020 with that number for simplicity.

The charts are pretty basic, The year in column 1, column 2 adds in an extra $1,000 that I hope to achieve through new buys and drip's working their magic the year before. Column 3 shows the overall dividend increases based on either 5% or 8% growth. The last one is what our forward dividends should be, at the end of the year.

There are some issues with these charts as I will be deploying money every month and should excel the rate of return going forward, but for simplicity I just added a thousand the following year. Also I'd like to be retired in 20 years and this chart shows the next 30 years. I did this for fun and also maybe at that time those drips, would add 1,000 synthetically. We would be using the dividends to live off in our retirement, so yeah things aren't perfect.

It will be cool, moving forward to compare where we are each year. Will we be under the proposed totals or over? Either way it creates a sweet target to aim towards or break through!

Without further ado, let's check them out.

This chart shows an average 5% growth rate on our overall portfolio.

How cool is that? In 30 years if we keep at it, we will be bringing in almost 90k a year from dividends alone. In 20 years we will be cashing in a cool 47k if we decided to retire then. We could live off that no problem, if the house was paid off and the kids were both out of the house!

Ultimately, though when we retire I'd love to sell our house and move to a cottage and live there. This would lower our cost of living and most likely create a tonne of equity on the house sale. This is a long way from now though and health would be a huge factor.

Anyways that is the 5% growth chart. Did you know that the total of those dividends alone would be worth $1,218,657.75 at the end….. Pfffft sweet! A millionaire and that doesn't even include our portfolio or any assets that we own. I like the sound of that. Might be able to upgrade the kayak to a bass boat!

This chart shows an average 8% growth rate on our overall portfolio.

An absolute massive difference in totals. It really shows the power of dividend growth rates. With the 5% dividend growth rate, you would need almost 20 years to get the dividend raises the 8% one gets in 10 years. 17 years to be exact. Is an 8% average portfolio attainable? I think so, but of course you can't be chasing yield. AT&T (NYSE:T) ain't going to be raising their dividend this high with their current yield. But Telus (NYSE:TU) is in the ballpark of this rate, same with those Canadian banks.

Now you got to remember we are talking about an average 8% dividend raise on your whole portfolio, You get some companies like CNR in there and they knock those averages way up. CNR has a 10-year average dividend growth rate of 14.7%. Canadian Utilities (OTC:CNUTF), Canada's longest dividend growth stock, has a 10-year growth rate of 9%. We need to start looking at their growth rates more than their current yields for long-term results.

With the same timeline of investing the 8% growth rate chart brought in $1,878,657.75 from dividends alone, a monster difference over the 5% one. A $660,000 difference is something to really consider. =)

So Is Dividend Growth Investing For You?

Hard question, eh? haha, the charts kind of speak for themselves. There is the argument, that if you are young you should focus on growth stocks. I know I passed on a bunch of stocks because they didn't pay a dividend. (Shopify (NYSE:SHOP) at $27, Canopy (OTC:CGC) at 6 bucks) No question I'd be richer at the moment if I didn't, but I want that cash flow! Also, I'm sure I would have sold my positions halfway up, making sure to take profits. With dividend growth investing, there's no market timing. Let those dividends continue to trickle in and stack those dividends! So yeah, dividend growth investing is for me.

These charts were an eye opener to me, I hope they may be to you as well.

What are your thoughts? Would you have done anything different in the charts?

Cheers!

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.