Boy, do I love dividend growth investing. You invest your capital with high quality companies which pay out dividends to loyal shareholders, and are able to sustain rising payouts over the long-term. You are then able to reinvest these distributions, which due to their rising nature over time, become larger and larger reinvestments. These larger reinvestments then purchase larger and larger amounts of shares, which pay out larger distributions due to your increased ownership in said companies.
This effect of reinvestment that compounds itself not only through dividend reinvestment, but a dividend that also increases over time, is simply wonderful. I’ve heard of this type of compounding referred to “hypercompounding” due to the fact that you’re not just compounding your wealth due to organic reinvestment of wealth, but your wealth is actually being reinvested at increasingly amplified amounts. Simply amazing.
High quality companies continue to allow shareholders to “hypercompound” their wealth through dividend payouts that rise year after year. For example, McDonald’s Corporation (MCD), the worldwide restaurant, recently raised their dividend 10%, going from a $0.70 dividend per share, paid quarterly, to a new $0.77 quarterly dividend per share. Philip Morris International (PM), the global cigarette manufacturer, also recently raised its dividend. The new payout for PM is up 10.4%, after rising from $0.77 quarterly per share to the new $0.85 quarterly per share.
When was the last time you got a 10% raise at work? I’ve never gotten a 10% raise at work. And, even if I did I know it wouldn’t be sustainable year after year after year. After these double digit dividend raises, your reinvested dividends just started compounding themselves at an increased rate. Hmm, we might be on to something here.
As I look forward to a day of football after a long 6-day workweek, I’ll know that I’m one day closer to financial independence because wonderful companies continue to reward me as a loyal shareholder.
Here are some excellent articles from fellow dividend growth investors, frugalists and personal finance bloggers from the past week.
Johnson and Johnson: Cautiously Optimistic at $68/Share
Dividend Monk thinks JNJ could rebound nicely from some recent recall and managerial issues. He likes the new direction the company is in and thinks the current valuation warrants attention with caution.
Is it Convenient? Would I Enjoy it? Wrong Question.
Mr. Money Mustache wrote this fantastic post that should force you to re-think your priorities in life. I wrote a lengthy comment in response to this article the highlights my recent journey back into normal society and my epiphany that I have found freedom from desire of things that mean nothing to my long-term happiness and satisfaction. Good stuff MMM!
Stock Bought: NSC
Dividend Growth Machine recently bought NSC on a day when it was down almost 10%. Along with yours truly, a number of bloggers picked up NSC shares during the bloodbath. You can see that here, here and here.
The Weekly Lineup: From Pigs to Podcasts, and FinCon12
The Dividend Ninja just announced he purchased The Dividend Pig. Way to go Ninja. Best of luck with the project!
Money Management for Dividend Investors
DGI discusses how a dividend growth investor must continuously monitor his/her portfolio and add to attractively valued positions while still maintaining a proper allocation and diversification level.
Investing Milestone
Passive Income Pursuit is going to hit well over $100 in dividends this month. Great job!
August 2012 Pocket Change Portfolio Performance
D4L reported on his dividend income from his Pocket Change Portfolio. Fantastic month, and he received dividends from some high quality investments. If my pocket change looked like that I’d probably already be working part-time!
Thanks for reading.
Photo Credit: Benoit Mahe
Mantra, thanx for the mention! 🙂
Compound growth is a wonderful thing, and as you point out with companies that raise their dividends year after year. Sounds good to me. I can only imagine where you will be when you are my age – I doubt you will have to work your 9-5. 🙂
Great call on Norfolk Southern! I understand the earnings decline was the result of less demand for shipping coal. But like Monopoly the big railroads are solid.
Cheers
The Dividend Ninja
Ninja,
No problem on the mention. 🙂
Yeah, like Monopoly the railroads are great. The reduced coal shipments did hurt them, but I feel it’s a short-term problem that can also be an opportunity to increase traffic with other goods.
I tell ya, if my work was only a 9-5 I might not be so intent on getting out of it as soon as I am. But it’s a 7:30-6, plus Saturdays. Ouch.
Great job on diversifying your revenue streams. I’m sure you’re at a point where you’re pretty close to being financially free yourself!
Best regards.
Thanks for the links. I read through a few on them and was really impressed with what Mr. Money Mustache had to say. I’ve gotten to the point where more possessions won’t make me happier, I have what I need. I’ve been able to get past almost everything. I’m not impressed with smart phones, I don’t need an Ipad or anything at all made by apple (ripoff), I don’t want a 50″ tv, fancy watches, etc. The one thing I’m a sucker for is cars. I still have a gas guzzling SUV that’s gonna have to go when I get back. It kind of sucks because it DOES make me happy, but it’s hard to justify. I need to get past it. Other than cars, it’s awesome to be content with simple things in life and not want things. It’s not that I want a lot of money to buy crap, I want it for freedom and awesome experiences. I’ll definitely be checking out the blog again. I like his sense of humor.
Your work schedule sounds pretty brutal, no wonder you’re so determined! I’ll click a couple of your ads and get you a little closer. haha
Ouch! That’s a crazy work schedule! No wonder you are so eager to build up a passive income stream 😀
Thank you so much for your blog. I’ve been following for many months now, and I have been inspired to start my own “dividend portfolio” too. This month is my best month ever. I’m on track to collect over $200 in dividends this month! Hooray! Of course, the end-of-quarter months (Mar/Jun/Sept/Dec) are always big compared to the other months.
If people panic, and fire sell all their stocks, the market will crash and goes way way down…then buy buy buy! By the next year, most likely your $1 buys in solid companies with solid assets and solid earnings business models are now worth $40, and they are counted as long term capital gains. Or buy even greater discounts for long term hypercompounding dividend growth stocks during a Market Crash, though very solid dividend stocks will less likely drop their dividiend payouts when tanking, and just keep paying out as their share price gets restored.
DM,
What goes through your mind when you read or hear people talk about a dividend stocks being the next bubble to burst?
For example this time article : http://moneyland.time.com/2012/07/24/dividend-stocks-the-next-bubble/
Ryan,
Thanks for stopping by!
Yeah, the work schedule is really ridiculous. If I was able to get away with a 35-40 hour workweek with more flexibility I might be okay with it. As it stands, I have no flexibility at all.
I’m glad you follow the blog and found some inspiration to start your own portfolio. That’s fantastic! $200 in dividends this month is awesome. That can pay for a monthly fuel bill, or possibly a good chunk of a car payment. You’re on your way, my friend!
Best wishes.
Compounding Income,
Yeah, MMM runs a fantastic blog. I only wish I could write as well as him. He has a great sense of humor, and his ability to put complex ideas/philosophies into plain language is amazing. Great blog.
I’m a sucker for cars as well, so don’t feel bad. That’s one of the reasons I work in the auto industry. If I could just have one splurge if I had the money, a nice car would be at the top of the list. I’m especially a fan of really nice sports cars. Ahh, but to dream!
Yeah, the work is crazy. I hate it. Even I did a job I truly loved (which I don’t) I’d still be unhappy doing it for 55 hours per week.
Thanks for the support!
Best regards.
Dtmheat,
There is no doubt that dividend stocks have become fairly popular over the last couple years as yield-hungry investors have loaded up on them for income. I think this affects your higher yielding stocks (like telecoms, utilities, MLP’s) even more and that’s why you seen some of these stocks really skyrocket over the last year +.
However, I don’t think that dividend growth stocks as a group are in a “bubble”. I think there are undervalued, fairly valued and overvalued stocks within this subset of the overall market. I think as a group they’ve had quite a run, but so has the overall market.
When I start seeing JNJ, PG and KO with P/E ratios of 40 I’ll say they are in a bubble. Until then, dividend growth stocks, just like most stocks, are a bit pricey right now as a group.
Best wishes!
Thanks for the link!
I’m getting antsy to make a buy or two but sadly there’s not enough capital available later this week when my money transfers to my other bank I’ll get some transferred to the brokerage account. I can’t wait til I get to start selling off my ESPP shares to put towards DG stocks. Bc I have over 30% of my portfolio in it right now but the discount is just too much to pass up.
I know what a brutal schedule is like and that’s exactly why I’m working so hard to get to retire early. Keep up the good work!
Passive Income Pursuit,
I hear you on getting antsy. Every time I get my monthly commission check I start to just chomp at the bit. What can I buy? Haha.
Yeah, my work schedule is brutal. Every month that goes by, I realize I’m one month closer to my goal. Of course, every month is also one more month of working way too much. Sometimes I contemplate just working part-time for the rest of my life..balancing now with later.
No problem on the link. Keep up the great work on your end too.
Best regards!
mcd and mo may be great dividend payers but what if they kill their customers by selling dangerous or deadly or merely unhealthy products…how should we as shareholders feel about that????
Anonymous,
I don’t worry too much about that.
First, people have choices to make in their life and to use or not use products that certain companies produce is just one of many choices that are to be made.
Second, you can name just about any company on the planet and there can be discussions about how the products they make or the services they provide are detrimental in one way or another either to people or the environment. In fact, a case could be made that people as a species are harmful to the environment…but I’m still livin’.
Best wishes!