What is dividend growth investing?
Dividend growth investing is a fairly simple investing strategy to understand: you buy shares in a company, preferably in a well-established one with a continuously growing business, and year over year, this company will (hopefully) reward you in forms of growing dividends.
Beware, the company you will invest in must meet the following requirements:
- Obviously, the company should pay dividends because, sorry to break it to you but, not all companies do so.
- Not only should it pay dividends, but it should also raise its dividends every year (because the goal is to make money, right?).
- The company should also be stable and well established.
Let’s look at an example: Suppose you buy 50 shares of a company for £10 each. Knowing that each share pays a £0,50 annual dividend, you will receive £25 in dividends. I know, you are probably thinking that £25 is very little money, but that’s actually a 5% yield, which is not too bad.
The benefits and drawbacks of dividend growth investing
The great thing about investing in dividend growth companies is that it leaves very little space for uncertainty. Indeed, unlike people who buy and sell shares in the stock market, dividend growth investors can enjoy their day without having to track some unpredictable portfolio value lines every two minutes. Therefore, dividend growth investing allows to ensure a more reliable source of income than with any other investing strategy.
However, even if dividend growth investing has gone from strength to strength in recent years, it is still not the preferred investing strategy, and you might be wondering why. But don’t worry, we have a small analogy for you to understand why this is. Let’s say you are a poultry farmer and you have two options: either you could make a lot of money right now by killing the chicken and selling its meat, or you could breed the chicken and wait for it to lay eggs over and over again in the hope to make more money in the future. As you probably guessed, dividend growth investing is all about keeping the chicken alive.
In that respect, the reason why not so many people go for dividend growth investing is because, as was so well put by business magnate Warren Buffett:
Nobody wants to get rich slow.
What do we want to share with our readers?
Within the dividend growth investing division, our aim is to provide our readers with a better insight into the world of dividends by making this concept enjoyable and accessible to anyone.
With this in mind, we intend to post a multitude of articles relating to dividend growth investing. These articles will focus on various lines of business (technology, healthcare, financial institutions, real estate, natural resources …) and many world regions, in order to further enhance your knowledge on how this concept is viewed all over the world. This is mainly made possible by the diverse cultural nature of our writing team which allows us to have a broad and holistic view of dividend growth investing.
If you’ve enjoyed this introduction to dividend growth investing, I recommend you stay tuned for our next articles!
–Darlène Babou, London School of Economics and Political Science