Why Dividend Growth Investing Should Be Your New Year’s Resolution by Ben Reynolds, Sure Dividend

New Year’s resolutions are nothing new. The current tradition of setting goals or resolutions for the New Year goes back to Roman times.

Setting goals for the new year may not be new, but it is challenging. The success rate of New Year resolutions is a miserable 8%.

What’s the best way to actually keep your resolutions for 2016?

Keep them simple and measurable.

This article discusses:

  1. Why you should make dividend growth investing your New Year’s resolution
  2. Simple and measurable ways to transition to dividend growth
  3. How to find dividend growth stocks

dividend growth investing

Keep reading to see why switching to dividend growth investing could be the best New Year’s resolution you’ll ever make for your bank account.

Why Dividend Growth Investing?

One of the pieces of information that originally ‘converted’ me to dividend growth investing is the strategy’s excellent historical track record.

Several historical examples of dividend growth stock outperformance are below:

Example One: The Dividend Aristocrats

The Dividend Aristocrats Index is made up of 51 businesses that have increased their dividend payments for 25 or more consecutive years.

Over the last decade, the Dividend Aristocrats Index has generated total returns of 10.4% a year, versus 7.5% a year for the S&P 500.

dividend growth investing

Source:  S&P Dividend Aristocrats Fact Sheet

Example Two:  Dividend Growth Stocks Versus ‘No Growth’ Dividend Stocks

No-growth dividend stocks pay the same dividend payment each year.  These are stocks that are not willing or able to raise their dividend payments.

No-growth dividend stocks have underperformed dividend growth stocksFrom 1972 through 2013, dividend growth stocks have outperformed no-growth dividend stocks by over 2.4% a year.

dividend growth investing

Source:  Oppenheimer Rising Dividend Fund Fact Sheet

Example Three:  Dividend Stocks Versus Non-Dividend Stocks

Dividend stocks have outperformed stocks that do not pay dividends over an 80+ year period.

Dividend stocks returned 10.2% a year versus 8.3% a year for non-dividend paying stocks in the period from 1928 through 2013.

dividend growth investing

Source:  Dividends:  A Review of Historical Returns

There’s more to dividend growth investing than just a history of great returns, however. Investing in quality businesses that can pay rising dividend income every year puts the focus of investing where it should be on the business.

Dividend growth investing encourages long-term thinking about the future of the businesses in which you are investing. Dividend growth investors look for businesses that have strong and durable competitive advantages that will support years of dividend growth.

In addition, buy-and-hold dividend growth investing minimizes investing costs. Buying shares of great businesses and holding them minimizes transaction costs and eliminates costly investment management and sales fees from financial advisors and mutual funds.

How To Transition to Dividend Growth Investing

If you find the historical evidence and philosophy of dividend growth investing compelling, then take action.

Make dividend growth investing your New Year’s resolution.

The simplest way to begin your transition to dividend growth investing is to start small. Every month, transition a predetermined percentage of your portfolio over to a dividend growth stock.

Over time, you will move your entire portfolio (or the portion you deem appropriate) over to dividend growth stocks.

It’s critically important to set a target amount of your portfolio you will move – and/or an amount you will save each month to invest in dividend growth stocks.

An example of a good dividend growth New Year’s resolution and a bad dividend growth New Year’s resolution are below:

The Good Resolution:

“Each month in 2016 I will save $1,000 and invest it in a high quality dividend growth stock”

The Bad Resolution:

“I will try to invest in some dividend growth stocks in 2016”

If you go with an explicitly stated New Year’s resolution, the only part of the plan that’s ambiguous is what high quality dividend growth stock(s) to invest in each month.

How To Find Dividend Growth Stocks

One way to find high quality dividend growth stocks is to invest exclusively in Dividend Aristocrats. Dividend Aristocrats are stocks with 25+ years of dividend payments without a reduction. Click here to download a list of all 51 Dividend Aristocrats (and sort by yield, P/E ratio, and more). Investing in reasonably priced Dividend Aristocrats is a quick ‘short cut’ to finding great businesses to invest in.

Alternatively, the Sure Dividend newsletter ranks 180+ stocks with 25+ years of dividend payments without a reduction systematically using The 8 Rules of Dividend Investing.

Another place to look for high quality dividend stocks in which to invest is the exclusive Dividend Kings list. A stock must have a paid increasing dividends for 50 consecutive years to be a Dividend King. There are only 17 Dividend Kings. The list includes many ‘household name’ businesses like: Coca-Cola (KO), Johnson & Johnson (JNJ), and Procter & Gamble (PG).

Make Dividend Growth Investing Your New Year’s Resolution

Dividend growth investing’s market-beating historical returns and common-sense methodology appeal to independent minded investors tired of high mutual fund fees, stock price performance chasing, and the uncertainty of not knowing what businesses’ stock you own in over-diversified funds.

If you are looking for rising passive income and have the discipline to stick to a long-term investment strategy, then you should make dividend growth investing your New Year’s resolution.