Posted by BM on April 11, 2021
Apart from the above average returns and growing income that have attracted dividend growth investors for years, we now have another catalyst to pique your interest, yield shortage.
In this recent article from Barron’s, the author points out that the yield of a 50-50 portfolio of stocks and bonds, once a reliable source of income for retirees, has dwindled to below 2%.
“Such paltry yields can make dividend stocks an attractive investment centerpiece for retirees. They can offer nice yields, and unlike fixed bond coupons, dividends can grow to hedge inflation, which many experts expect to tick up.
The strategy has spawned something of a movement, encompassing investors of all ages and levels of sophistication. There are Facebook groups devoted to the topic along with blogs, newsletters, books, and various other platforms.
But these investors are not your GameStop traders or momentum players. They are in many cases diligent investors adopting sound strategies to build a portfolio for the long haul, investing sometimes $100 here or $50 there. They’re more like modern-day moms and pops.”
The article also quotes Bob Baker, a retired aerospace engineer, who zeroed in on dividend growth investing in 2015 shortly after his retirement.
“Once I fully understood the significance of dividends from quality companies, a priority focus for me was not to have to sell any shares of any holdings.”
Barron’s then reached out to several other dividend growth investors and found that Bob Baker was not alone. Many believed that it was possible to manage a dividend growth portfolio for long term returns while at the same time minimizing risk.
Another article this week in the Globe & Mail, John Heinzl, who has been publishing the results of his model dividend portfolio since 2017 (20 companies with a history of raising their dividends), seems to agree.
“Reinvesting dividends is one of the keys to building wealth. Whether you enroll your stocks in a dividend reinvestment plan or reinvest your dividends manually when a sufficient amount of cash builds up, you’ll be putting the power of compounding in your corner.
The beauty of compound growth is that it accelerates over time, like the proverbial snowball that gets bigger as it rolls downhill. When compounding is combined with dividend growth and capital appreciation, it can achieve some extraordinary results over the long run.”
Whether you are young or old, need help with investing or are an experienced investor, it is hard to ignore the many benefits of a dividend growth strategy especially when the alternatives are not that appealing these days.
