The stock market can be difficult to traverse and many people see the stock market as a volatile and seemingly random place. For many of these investors, while they want the higher returns associated with equity investments over bonds and cash, investing in index fund is a way for them to get normalized returns without having to do much research. However, there are risks to this strategy a more individuals develop index based strategies they become more prone to bubble like tendencies that can harm investors over the long run. To combat this index risk many investors are turning to an dividend growth investing strategy.
What is Dividend Growth Investing?
Investors who pursue dividend growth investing choose companies that have a history of raising their dividends for a predefined period of time. Some investors go for dividend aristocrats who have 25 years of dividend growth increasing. Others are willing to accept shorter histories of dividend increases. Either way, the focus is on companies who have the financial resources to support increasing their dividend each year. Overall, this strategy coincides with businesses that are better established, have excess cash flow, and have more predictable lines of business.
Benefit of Dividend Growth Investing for Individuals
For investors, the focus is on companies that have the ability to pay cash dividends to investors which can be then used to supplement income that they earn from other sources. Investors who then go about reinvesting those dividends, either through dividend reinvestment plans (DRIP) or into new dividend paying securities, will then see their supplementary income from these sources snowball and multiply as time goes on both from income generated from the reinvested dividends but also from the increasing dividends on these stocks. With these additional revenues these investors may find that they have enough to retire and focus on their other interests outside of their career.
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