Retirement Strategy: A Dividend Growth Portfolio For Those With A Comfortable, Long Time Horizon

Summary

• Those dividend growth investors with time horizons of 20 to 30 years or more are in an envious position.
• How about some suggestions for a "pandemic" dividend-growth portfolio?
• Not all of us are retired or nearing retired, so why not start building a portfolio for younger investors right now, while there are some very attractive buys?

Let's have some fun for a change. After all, we are tired of just talking about the negatives we are currently living through, right? These awful times will not last forever and you younger investors might have a pretty good opportunity in the face of all of this gloom!

A Longer Time Horizon Dividend Growth Investor

Not everyone is already retired. There are plenty of younger investors who are either just starting out or trying to build a solid dividend growth portfolio because they have 20 to 30 or more years to go before retirement. I can recall taking more risk (not usual for me) and being aggressive when I began dividend growth investing 40 years ago. Not everyone has a large risk appetite these days, so I'll go for a bit more conservative approach.

Here are a few simple guideline suggestions that younger dividend growth investors should keep in focus:

• You have time on your side and have a relatively secure well paying job ($50,000 or more annually).
• Your appetite for risk might be above average because you have a great job and plenty of time to make up for some lousy selections.
• You must realize that a balanced dividend growth portfolio does not need to have only dividend aristocrats or kings and can include dividend "opportunity" stocks that carry more risk.
• You will need to maintain a budget and consistently invest in your selections on a very regular basis. Every paycheck is a great start.
• Remember to set aside a cash reserve to fall back on when or if needed - either for opportunistic dividend stock buys, or to pay essential bills if things go haywire.
• Reinvest all dividends received right back into your portfolio holdings. You won't need the income for a very long time.
• The more shares you have of stocks that pay you to simply hold shares for the long run, the more retirement income you will generate 25 years from now.
• More shares, solid dividend growth, and regular investing could make you wealthier than you might imagine right now. Everything will grow exponentially as compounding will work.
• Spend less than you have coming in, forever.

If the above suggestions are implemented at an early age, the pandemic crisis we are all facing will be a distant memory 20-plus years from now. Why? Well, because all throughout history every terrible event that ever hit the stock market has always led to higher highs and greater wealth.

Take a look at this historical chart:

From just before the "crash of 1929" to just before the "pandemic plunge" of 2020, the entire history of the Dow Jones Industrial Average (DJI) has been up. While there have been times where it has taken longer to recover from terrible events, investors with 25 to 30 or more years to work with have always made out very well. Especially with dividend growth stocks.

Yes, there are millions of people who were unfortunate to have invested at some wrong times and never recovered, however the overwhelming number of regular and focused investors have done quite well.

Building a solid and more secure financial future can be accomplished even during awful times if you have that long time horizon, and the discipline to stay with the process.

So What Am I Doing?

I could comb through the list of dividend aristocrats and kings and probably come up with a group of 10 stocks that I would start a long-term dividend growth portfolio, but I don't believe that all of these time-tested dividend growth stocks will even be around in 30 years. I do however have my opinions on which dividend growth stocks will survive, and thrive, while they continue to pay and increase their dividends every year for the "lucky" long-time horizon investors

Is this a guessing game? Sure, but I feel like looking forward to better days ahead rather than always writing about the short-term mess we know all too well. While my suggestions will have a core of well known names, your suggestions might look a lot better than mine

I am hoping to have a robust comment stream with all sorts of stock suggestions for dividends, that will be here for the next 20 to 30-plus years. If we can put together a great list of dividend growth stocks for younger investors, it might just help regular folks' retirements in the future.

Let's have some fun with this!

My Suggestions For Dividend Growth Stocks That Could Last For Decades

1. Johnson & Johnson (JNJ): Dividend yield - 2.75% and annual dividend growth - 6.32%
2. Procter & Gamble (PG): Dividend yield - 2.72% - five-year annual dividend growth rate - 3.23%
3. Microsoft (MSFT): Dividend yield - 1.20%: five-year annual dividend growth rate - 10.45%
4. Apple Inc. (AAPL): Dividend yield-1.15%: five-year annual dividend growth rate - 10.49%
5. AT&T Inc. (T): Dividend yield-6.96%: five-year annual dividend growth rate - 2.09%
6. Walt Disney (DIS): Dividend yield - 1.67%: five-year annual dividend growth rate - 8.88%
7. PepsiCo Inc (PEP): Dividend yield - 2.99%: five-year annual dividend growth rate - 8.41%
8. Con Edison (ED): Dividend yield - 4.00%: five-year annual dividend growth rate - 3.30%
9. Exxon Mobil (XOM): Dividend yield - 8.07%: five-year annual dividend growth rate - 4.90%
10. Realty Income (O): Dividend yield - 5.50%: five-year annual dividend growth rate - 4.38%

While this is not very sexy, the average yield with the same number of starting shares comes to 3.70% on an annual basis. Not only that but the average five-year annual dividend increase for this little batch is 6.245%

Over a 30-plus-year period, the most important number is that annual "raise" of 6.245% - which obviously could, however, fluctuate with the stocks selected. My bet is that the annual increase will be close to that range anyway.

When you invest in this batch of stocks equally, on a regular basis (let's say monthly), with 30 years of compounding both the number of shares as well as the annual increases you should be in great shape when you decide to retire.

Obviously the more you invest the larger your income stream, will be so I will let each of you figure out that number! (I hate math.)

How About A Growth Stock That Doesn't Pay A Dividend, Yet?

I might even suggest shares of Amazon (AMZN) even though it does not pay a dividend yet. My reason is that AMZN has perhaps the widest moat of any company on the planet! The company offers virtually everything from any retail product to food products, and is still widening that moat. The businesses they are in has lots of competition, but as the "pie" for internet shopping grows, AMZN will continue to get a huge share simply because it is the "21st century Walmart (WMT)" without leaving your home.

So add Amazon to this list if you believe that at some point they will become a wonderful dividend growth stock. (Twenty to 30 years is a long time, folks!) Personally I believe that as the flight to Internet shopping grows - and as more small players nip away at Amazon - while their revenues and profits will rise, a dividend to attract investors might not be that far down the road.

My Bottom Line

I've been writing about most of the negatives of our investing world so this simple article might help lots of folks that are more confused than many of us. It's easy to read and understand, and I think it might give some people hope. Hope for a brighter financial future that i am certain is just around the corner.

Let our community here know what your stock selections would be for the long run!

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.