When you own a business, you get to enjoy the business’s profits. When you own stock in a company, you actually own a part of that business. So, shouldn’t you get some of the profits as well? If you own stocks that pay dividends, you do—and many people make this their entire investing strategy, it’s called Dividend Growth Investing..

How to Start Dividend Growth Investing

  1. Sign Up for a Stock Investing Account
  2. Buy Stocks That Pay Dividends
  3. Use Dividend Income to Buy More Dividend Stocks
  4. Create a Long-Term Plan and Stay Disciplined

When it comes to stocks, most casual retail investors assume that the main thing to pay attention to is the price. Stock price is important if you are going to live by the popular adage of buy low, sell high. But buying and selling stocks (also known as active trading) is something that requires skill and tools beyond the abilities of most investors. But if don’t have an interest in actively buying and selling stocks, there are other strategies you should to take into consideration—such as dividend growth investing.

The strategy behind a dividend investor is that they are playing a longer timeframe game. This way they avoid active trading and in place of that they patiently and consistently use dividends to accelerate the growth of their investments. Through regular contributions, the balance sheet grows rapidly.

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What is Dividend Growth Investing?

Dividends are company profits that are paid out to shareholders. And it’s important to note, that not all stocks pay dividends. A company in an aggressive phase of growth may reinvest profits to expand its footprint. An established company (one that has a longstanding policy of always issuing dividends) gives each shareholder a portion of the company profits that is commensurate with how many shares they own. This is known as a dividend payment.

The dividend yield is a statistic that indicates how much dividend a particular security (stock) is going to make. If a stock is priced at $100, and the yield is $3, that means this stock is going to generate around $3 annually. It doesn’t sound like much, but what if you own 10 shares of that stock? That would be $30. And what if you owned 100 shares, that’s $300 of pure passive income. Regardless of whatever happens to the stock price, you still get your dividends (unless the company decides not to issue them, which rarely happens).

Now take that dividend payout and use it to buy more of the same stock. In our example above, with 10 shares, it would only take you about three years to have your dividends make enough money to buy another share for free (assuming the price doesn’t increase and outpace the dividend yield). And if you owned 100 shares, your dividends would create three additional shares each and every year!

The dividend growth investment is exponential. The more shares you own, the more dividends you get. The more you reinvest those dividend payouts, the more shares you buy, which in turn generates more dividends. This is dividend growth investing.

How do you Start Dividend Growth Investing?

It doesn’t take a lot to get started with dividend growth investing. Follow these steps, and soon you’ll be reaping the (passive) benefits:

1. Sign Up for a Stock Investing Account

Brokerage platforms are everywhere these days. More than likely, the bank where you have your checking account will have one. There are also dozens of apps that allow you to buy and sell stocks right from your phone. This is where you begin to buy and hold stocks that produce dividends.

Some of the best trading apps even let you buy fractional shares of stock. So if you can’t afford one full share, you can enter with as little as a dollar. Whatever you pay, you now own a fractional portion of one share, and fractional dividends as well.

Dividend Investing

2. Buy Stocks That Pay Dividends

You will need to do a little research to see which stocks pay dividends. Stocks that pay dividends are typically well established companies, and many of them are also recession proof stocks. These businesses are branded, established, and have a captive customer base or little competition. They are often conservatively financed and carry little debt. This means they have plenty of leeway to issue company profits as a dividend payout on a yearly basis.

Industries with a history of good dividend payouts include telecom, finance, gas & oil, utilities, and consumer staples (like food and medicine). These are typically the items and services that consumers will always need. You can also use research tools, like our Weekly Stock Trading Room, to learn more about the stock market.

3. Use Dividend Income to Buy More Dividend Stocks

Now comes the sweetest part of the dividend investing plan: putting those dividends back to work. Dividend reinvestment is a long-term strategy that involves staying consistent. You don’t need to worry about learning how to buy the dip or analyzing markets or charts. You just need to pick a few securities to invest in regularly. Turn on the automatic dividend reinvestment feature that most brokerages offer and watch your account grow.

It can be quite rewarding to see a quarterly dividend come in and your portfolio swell. Of course, you should be assisting that growth with your own recurring reinvestments, which leads to some exponential growth through compound interest.

4. Create a Long-Term Plan and Stay Disciplined

Some of the greatest and most successful Wall Street investors do not sell stocks frequently. Instead, they buy stocks and hold onto them for long periods of time (sometimes for life), collecting dividends.

For example, if a dividend growth investor has a million-dollar stock portfolio with securities that averaged a three percent dividend yield, they are looking at $30,000 of passive income annually, just from dividends alone! And if they have a 10-million-dollar portfolio, that’s $300,000.

Those numbers may seem far away. However, after several decades of reinvesting dividends and making regular contributions, you can easily see your investments grow to that amount. While it’s nice to learn how to read stock charts and understand financial markets, the beauty of a dividend investment growth plan is that, for the most part, you can let it grow on autopilot.

When you hit retirement or need to fund an important milestone, you can pause the reinvestment of dividends and collect them as positive cash flow.

When Should You Sell Dividend Growth Investments?

The answer is never! Unless a company is struggling to survive, there’s a strong argument for holding on to your investment for life. Companies like Coca-Cola, 3M, and Johnson & Johnson are not going out of business anytime soon.

Remember that if you can grow your investment portfolio to a certain amount, the dividends alone will generate sizable amounts that you can collect as income instead of relying on selling stocks to obtain cash.

Which Stocks are best for the Dividend Growth Investments Strategy?

Dividend Aristocrats and Dividend Kings

There is a group of dividend payers called the Dividend Aristocrats and Dividend Kings. A Dividend Aristocrat is a company pays an increasing dividend over the course of 25 years. A Dividend King is a company that has increased its dividend payouts over the course of 50 years.

These dividend paying companies have a long history of financial success that they share with their shareholders. Some of these companies, such as American States Water Company, have been paying increasing dividends for more than 65 years. And other companies are household names, such as 3M, Procter & Gamble, and Tootsie Roll Industries.

Keep in mind that just because a company is on this list, it doesn’t mean it’s best for your portfolio. Sometimes you want to consider other factors, like the price of the stock, and how much that price has grown.

But if your focus is truly dividends, and you want to reap the reward from each and every dividend paying company, there are ETFs like the ProShares S&P 500 Dividend Aristocrats ETF (ticker symbol NOBL) that you might consider investing in.

Dividend Growth Investing is a Great Way to Earn Passive Income

Dividend paying stocks are a great way for an investor to use reinvested dividends. This will steadily build a sizable portfolio that can, one day, produce a substantial fixed income from its dividend payouts. This capital appreciation will accelerate due to regular contributions the investor is already making into their investment accounts. The annual dividend increase of such a strategy is exponential. And the more dividend growth stocks an investor has, the more shares the annual dividend of their portfolio can produce. It’s a wonderful cycle and with a little patience, you can build true, lasting generational wealth.

Learn more about this stock market investing strategy and others by signing up for an Infinity Investing membership. Our free membership gives you access to workshops, investing experts, and more. Don’t put it off another day, start your journey to financial freedom now!

Bonus Video

Infinity Investing Featured Event

In this FREE event you’ll discover how the top 1% use little-known “compounders” to grow & protect their reserves. Our Infinity team of experts show you how to be the best possible steward of your finances and how to make your money and investments work for you instead of you working for them. Regardless of your financial situation today, you’ll have a road map to get to where you want to be.