What is Dividend Growth Investing

Dividend growth investing is a strategy that involves purchasing stocks for the long term of quality, industry leading companies with a history of annually growing their dividend rate paid to shareholders.

The investor will buy shares of some of the greatest companies in the world.  While the investor owns these companies, they will receive income in the form of dividend payments.  If the investor has chosen his companies wisely, his dividend income should grow over the years because the companies are annually increasing the amount they are paying out.

Why is Dividend Growth Great

Companies that have the ability to annually grow their dividend rates tend to be great companies.  Think about it.  If a company can continually increase the amount of income they pay out to shareholders, then they must also be continuously increasing the amount of income they are earning.


When we invest in companies, we want to buy the companies that have the ability to make more money year after year.  Yes there will be some down years for net income.  But the idea is that more often than not, the companies we want to own should be making more and more income.

Dividend growth companies generally have a history of not only growing their dividend payments to shareholders but also their own bottom lines.

What this means is that these investments are more likely to increase in value over the long term time frame.  And isn’t that the main goal with investing?  Increasing the value of the stocks we own?  Yes it is.

Another great thing about dividend growth investing is that an investor has the ability to grow their wealth and purchase enough assets (shares of stock) that are paying out a passive income to eventually retire and live completely off the passive income.  The investor can use this passive dividend income to cover their live expenses.  Also, the companies we should want to invest in will be growing their dividend rates faster than inflation.  This means that our income will grow faster than our expenses.

Goals of Dividend Growth Investing

The main goal of dividend growth investing is financial freedom.  Dividend growth investors are aiming to be able to own enough stocks where they can live completely off the dividend income.  The investor will no longer need to work but instead can meet all their financial obligations with the passive income they earn from the stocks they own.

Dividend growth investing can provide:

Financial Freedom – eventually a dividend growth investor will be able to live completely off the passive dividend income earned from their stocks.
Financial Security – the more wealth one has, the more financially secure they are.  By building wealth through dividend growth investing, the investor is increasing the amount of financial security they have.
Investing Stability – dividend growth companies are usually very consistently good performing investments.  The stocks you own will provide an income.  The dividend rate will provide a floor to how low the stock price may fall.  When a stock price falls, the dividend yield increases.  As a yield increases, the stock will become more appealing to investors and investors will move in buying shares.  This creates a sort of floor to how low a dividend growth stock will go in value.

Investment Accounts

When you’ve decided you want to start investing in dividend growth stocks, you need to think about what type of account you should use.

I would recommend opening up an online discount brokerage account to keep costs low.

Scottrade – I personally use Scottrade which has $7 commission trades.  I also like the fact that they have physical brick and mortar locations I can go to if I need help.
Charles Schwab – Schwab has trades as low as $8.95.
ETrade – ETrade has trades for $9.99 commissions.
TDAmeritrade – With Ameritrade, the investor trades for $9.99 commissions.

I’m sure there are many others to consider.  These are the few that are the most well known and where I would look first when considering a brokerage to invest through.  Things you will want to look at when considering a brokerage are minimum account values, commission rates, inactivity fees and dividend reinvestment policies and fees.

Along with deciding where to open an account, the dividend growth investor needs to decide what type of account they want to open.  There are a few different account types investors will want to consider based on their personal goals:

Taxable Account – The taxable account is exactly as it sounds, fully taxable.  The money you contribute to the account comes from after tax dollars.  Once that money is invested, you are taxed on any dividends you earn as well as any short term and long term capital gains you may recognize.  However, funds in taxable accounts are available without penalty any time you should need to access them.
Traditional IRA – The traditional individual retirement account (IRA) is a tax advantage account where the investor contributes pretax dollars.  Money is invested before you are taxed on it and is allowed to grow without paying any taxes.  At the point the investor begins to pull this money out of the account it is taxed as ordinary income.  This type of account should be used for retirement savings because there are penalties for withdrawing and spending this money before a certain age.
Roth IRA – The Roth IRA is also tax advantaged.  Money is contributed to the account with after tax dollars.  Then the investments are able to grow tax free.  When the investor begins to withdrawal the money from this account, it is also considered tax free.  Like the traditional IRA, there are penalties involved with early withdrawal of the funds in the account.  Therefore, it is best to use this type of account for retirement investing.

Once the investor has decided where to open an account and what type of account to use, he needs to figure out where exactly to find dividend growth stocks.  Fortunately there are some good resources for this.

stock market

Where to Find Dividend Growth Stocks

Finding dividend growth companies may seem like a challenge but there are actually a few decent resources to give the investor a start.

S&P 500 Dividend Aristocrats – the dividend aristocrats are companies that have grown their dividend rate for at least 25 years in a row.
DRIP Investing Resource Center – At this website there is a good resource of dividend growth stocks.  Under the information section, you can see the U.S. dividend champions list.  Open in excel or PDF and you will see a list of all companies who have increased their dividends for at least 5 years in a row.  This is the resource I use most often.
35 Top Dividend Growth Companies – This is my Kindle ebook where I feature the 35 companies I am using to personally build my own dividend growth portfolio.  Part one gives a brief introduction to dividend growth investing.  Part 2 discusses the most important metrics used in evaluating dividend growth companies along with detailed info on each of the 35 chosen companies.
Free Dividend Growth Stock Investing Newsletter – Along with my site, I write a monthly newsletter in which you will find information about different dividend growth companies.  Sign up and you’ll also receive my free Dividend Growth Investing Guide.


Hope you enjoyed this brief article on getting started with dividend growth investing.  In the upcoming few weeks I plan on going much more in depth on the many topics involved with learning dividend growth investing.  My goal here is to create successful dividend growth investors.  Stick around and hopefully you’ll learn all you need to know about creating wealth using dividend growth!