The Risks and Rewards of Dividend Growth Investing3 min read
If you’re looking for a way to hedge against market volatility and inflation, consider dividend growth investing. While it has been hailed as a safe bet with a high probability of a positive future, dividend growth stocks are not without their risks. You’ll need to pay attention to how companies pay dividends – they have to generate a profit in order to pay you dividends, but they’re also contingent upon that profit.
Most investors invest for their retirement, but dividend growth stocks can provide you with the steady income stream you need to enjoy your golden years. With regular contributions, the annual dividend increase of such a strategy becomes exponential. Eventually, you will have an income stream that is substantially higher than your expenses. As a result, dividend growth investing can be a wise way to build your portfolio. But you have to be patient. Dividend growth stocks are not for everyone. There are many risks associated with this strategy, and it’s not for everyone.
Dividend growth investing requires that you choose firms with moats – something Warren Buffett would do. Without moats, firms will likely revert to their historical levels of profitability and growth. And if that happens, your stock will go down in value. Instead of paying for this growth, invest in companies with moats. This will ensure that your money continues to grow and pays dividends even when the markets are down. For many investors, this is the best way to ensure long-term wealth.
While dividend growth investing requires you to invest regularly, this strategy can be done passively. You do need to monitor your portfolio periodically, but it is well worth the time and effort. You won’t need to invest in high-risk stocks if you can invest in dividend growth stocks. You can use a free app, like Webull, to make smart investments. Webull lets you buy and sell stocks, and sets alerts so you can buy at the right time and price.
Dividend growth investing involves buying stocks with high dividend yields. In exchange, you will get tax benefits. If you choose companies with high dividend yields, you may have to accept low or no dividend growth. In this case, your returns will be more than doubled in 30 years. However, if you can hold on to your investment for 10 years, you could earn a hundred-million-dollar portfolio that generates $300,000 annually.
When analyzing stocks, keep in mind that defensive sectors are less likely to be hit with dividend cuts. Dividend payout ratios are often lower than their peers, so defensive stocks are best for this purpose. Moreover, defensive stocks have higher chances of increasing dividend payouts. Despite their low dividend payout ratios, they are still safe to invest in, and defensive stocks are good for dividend growth investors. If you can’t stand the idea of risk, you may want to stay away from these stocks until you have studied their financial statements thoroughly.
When choosing dividend growth stocks, it’s important to choose those with a long track record of increasing their dividends. This strategy creates a steady stream of income and a low level of volatility. The following article provides an overview of dividend growth investing, discusses how to implement it and the types of stocks to buy. Finally, we examine some of the pros and cons of this strategy. Don’t forget to look for the companies that have demonstrated a strong history of dividend increases, and consider these companies when making your investment decisions.