I’ve invested in stocks for the past 10 years with success and I can say dividend growth investing is truly the best way to grow your wealth.
One huge misconception I often hear from people is dividend investing gives you small returns.
I remembered a friend telling me: “But Willie, the yield is so tiny…”
And then they’ll tell you to invest in other things…
“Why don’t you look at properties?”
“Cryptocurrency is going to make you rich…”
How to Turn Your $100 Into $9,568 Using Dividends
Here’s the thing, dividend investing gives you one of the best risk-adjusted returns. What this means is you can get the best possible returns on your investments, while safely protecting your capital.
Let me explain.
Research shows a basket of dividend stocks outperformed the S&P 500 Index by a wide margin decades after decades.
If you’d invested in a basket of dividend-paying stocks, your returns would have exceeded the returns of the top 500 US-listed companies.
These isn’t something I made up, but facts backed by research which supports why dividend investing is so powerful.
Source: Ned Davis Research, Hartford Fund
People underestimate the power of dividend investing.
When a dividend gets deposited into your savings account, money can be reinvested again to make more money.
This is called compounding.
This might surprise you. It’s usually returns from your dividends which gives you the fatter returns than what you’d get from the price gain alone.
And dividends are the real cash you receive into your bank account every month, quarter, or half-yearly, depending on the stock you bought. This is unlike capital gains alone where you have to sell your stock every time you want to realize your profits.
Here’s 5 reasons why dividend growth investing is still the best strategy ever.
1. Read This or Go Broke!
Then why do people still say other investments like real estate and cryptocurrency have far better returns or prefer to invest in them?
Because “get rich quick” stories are more exciting to hear, which hardly works out. These investments make your heart flutter and you’d rush in like moths to a fire thinking you could make the quick bucks, only to get yourself burnt later.
Look, most will fail miserably at the investing game.
Only 1% get rich investing, another 4% achieve significant financial independence, and the other 95%, well, they are just that.
This is because many are influenced by popular, new shiny objects versus focused-thinking on direct profit from every investment.
They do not see the hidden risks.
No one ever told you about how people lost their pants flipping properties or have their savings wiped out from a bitcoin crash…
I was glad I looked the opposite way early on and focused my energy on this strategy which has been long forgotten…
2. Dividend Investing Motivates You to Accumulate More Wealth
Dividends you get monthly or quarterly can be invested in more of the same stocks.
Or you can buy stocks of a different company…
Or choose to spend it on your favorite restaurant or buy a yacht.
It’s fun to control your income, isn’t it?
It’s even more exciting to see real cash coming in every other month.
I didn’t pay much attention, but after a few months I started seeing dividends rolling in.
It felt therapeutic. And I began to enjoy the idea of having cash coming in. It pushed me harder to look for more stocks, and motivated me to dig deeper into the world of dividend growers.
3. Dividends Are a Gate to a Company’s Soul
Dividend investing usually buys stable businesses running for decades. Many of these businesses make it a much safer investment than any other types of stocks.
If you look at the Dividend Aristocrats, these are companies which have increased their dividends consecutively for the past 25 years.
They have successfully paid dividends to shareholders not only during good times but during crisis like the tech bubble crash in early 2000, the global financial crisis in 2008 and the recent pandemic.
Here’s a quick tip: If you’re just getting started, you want to look at companies which have at least $10 billion in market capitalization.
4. It’s Easier to Start From Dividend Investing
Believe me when I say this, you don’t want to spend all your time doing constant research.
You see, when I started investing, I tried a whole bunch of strategies — special situations, “turnarounds”, growth investing, small-caps, distressed investing.
They work but you need to spend all your time reading management transcripts, calling management, analyzing deeply in research.
As you get older, would you want to spend your time reading the balance sheet?
You still have to put in the time and effort but it’s dividend investing gives you a shortcut.
5. Your “Poor Man’s” Way to Early Riches
When I worked as an investment advisor serving very wealthy clients, I found this one thing which changed my perception of the rich.
You see, wealth people like buying properties for rent, bonds for coupons, stocks for dividends. Ultimately, they chase after this — income-producing assets.
Because income not only gives you consistency, there’s an element of safety.
If you think like the rich, you’ll soon become one.
Dividend Investing Still the Best Way to Go
Dividend stocks are the best way for you to get started even with a full-time job. It’s a viable, long term strategy which will NEVER go out of favor, generating you income month after month.
You can get started with just $1,000, and still explode your returns with dividends alone.
As you produce more income from your dividend portfolio, the less reliant you’re on your job, and this gives you more financial independence.
And financial independence means you can quit your job and your life wouldn’t be all that affected.
Always here for you,
Willie Keng, CFA
P.S. If you’d like to learn more about dividend growth investing, and get fresh stock ideas, do join our FREE weekly email list. I unpack massive resources you need to know as a dividend investor. Get the first episode here.