Why (D)ividend (G)rowth (I)nvesting?

Why (D)ividend (G)rowth (I)nvesting?

First of all, maybe I should explain what DGI is. It basicly means that you’re buying into a company instead of just buying a certificate that fluctuates in price. Looking for companies that pay a dividend is obviously part one, but looking at their dividend history is where it gets really exciting!

How many consecutive years have they paid their dividend, how many years have they raised their annual pay out consecutively? If a company has a long term vision and is investor friendly they will have grown their dividends over the year, which in turn makes the share price go up.

Now what does this tell you?

If they paid out their dividends and even raised it through multiple crises, this tells me they have a sustainable product or service which will not be influenced to much by global recessions.

Raising the dividend will greatly improve you’re yield on cost, or YoC. If you initially have an annualized 2% dividend, but they raise their dividend each year, you’ll get more return on your initial investment. This will also protect your money against inflation, which is a great bonus if you are investing for the long term!

So as I am a fellow ‘owner’ of a company instead of a owner of a share which fluctuates in price, and I believe in the company as I have done my research I can sleep well at night. If they are having some short term troubles or there is a crisis which lowers the share price, it does not matter to me, as long as they pay me my dividends and are able to raise it every year.

All a lower share price does for me is, present a oppurtunity to buy more shares of a great company for a discount price.

A snowball rolling down a mountain:

When an investor reinvests all dividends (either directly by DRIP or Dividend Reinvestment Program, or saving up dividends and manually reinvesting them) and keeps putting new money into his/her portfolio this will greatly increase every monthly/quarterly/semi-annually/annually pay out. If you collect more shares with every pay out, the compounding will start to kick in soon! Albert Einstein is even believed to have said “Compound interest is the eighth wonder of the world”.

The longer you’ll let this snowball roll down the mountain, the more snow it’ll collect which in turn will make it bigger and able to collect even more snow. And so on and so on.

Now where am I in this story?

I’ve started investing in January 2017 with an initial amount of around €8000, in the remainder of 2017 I have reinvested my dividends and put more cash in my portfolio to the point where I have a €20.000+ portfolio by the beginning of December. Currently my portfolio consists of 17 stocks ranging from low yielders with great growth ahead of them to big yielders with just enough growth to outpace inflation. Currently this gains me €641,72 after the deduction of dividend tax (15%).

In my first year 12 companies have raised their dividend after I bought the stock, with an average raise of 8,45%. This gains me a €32,37 (pre-tax) of dividends already in this first year. So even in 2017, where the markets seem to be greatly overvaluad I have seen plently of oppurtunities to get my snowball started, and it has begun to pick up some pace!

So at what stage are you, did you just start, or have you been playing this strategy for a while now? Or maybe you are just discovering this idea?

Let me know, and questions are always welcome!

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  1. In it something is. Earlier I thought differently, I thank for the information.

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