Dividend Growth – Investing To Fund An Early Retirement

I love the idea of retiring early. In fact, Susan and I could, if we sold our businesses, retire today but we’re not ready just yet.

However, we are now in a position where we can say – we only work if want to. We have now secured enough income to be certain that we will never struggle to live our lifestyle ever again.

We are still looking for ways to improve our investments though. After all, we want our money to work as hard as possible. It’s money, we aren’t going to feel bad if it pulls 24-hour shifts, 7 days a week. It won’t be sad or tired for it.

Dividend Growth Investing The Lowdown

Something that came to our attention recently was dividend growth investing. An old friend of my father, Fred Jacobs, who has been a very successful investor – stopped by the other day to explain it to us and we’d like to share what we learned with you, our readers.

A dividend is a sum of money paid out to certain shareholders of a company each year. It represents the share of profits that were not reinvested in the business. It’s the “interest”, sort of, on the money you loaned the business when you bought their shares.

Many people invest based on the growth in the overall share price. They are equity investors. Their intention is simply to buy a share at a low price and sell it at a higher one. The trouble with this as a strategy is that it breaks an investor’s connection with the business.

They don’t care about the business and its fundamentals. They just want a higher share price. In an economic crisis, these are the first investors to dump their stocks and run for the hills. They haven’t got the patience to see out a storm.

Dividend growth investors are the opposite. They invest not for the equity appreciation, though it certainly doesn’t hurt, but for the growth in annual dividend payments.

An Example Of Dividend Growth Investing

The logo of Johnson and Johnson one of many companies that dividend growth investors like.

Back in 1997, Johnson & Johnson was paying its shareholders a pleasant 43 cents a share in dividends. If you held 100 shares in the company that year at the end of the year, you got a check for $43. Not bad, right?

In 2016, things had changed somewhat. Johnson and Johnson was paying $3.15 per share in dividend payments! That is, they paid out $315 to someone with 100 shares.

That’s a growth of 730% in under 20 years. Do you want to know something else?

Johnson and Johnson’s dividend payments rose every single year for that 20 years. Even during the economic crisis of 2008, their share price went down but their dividends went up.

A smart dividend growth investor is delighted by a fall in stock prices. It means that they can buy more of a highly-performing stock for less money! A big win.

But Why Should I Link Dividend Growth Investing To Early Retirement?

Dividend growth investing is great for early retirement because it’s a form of income generation. You keep the capital, the shares, and take the income they generate.

If you had bought 10,000 shares in Johnson and Johnson. You’d have taken home $30,150 in 2016 and you’d still have 10,000 shares in Johnson and Johnson. If you had 33,500 shares, you’d have made more than $100,000 and you’d still have your shares.

A dividend growth investor’s early retirement is a funny thing. There are going to keep getting their payouts for the rest of their lives. A decent performing stock, like Johnson & Johnson’s, is going to outpace inflation whether or not the stock price goes up or down!

Dividend Growth Investing Is Also Rapid Investing

An escalator to symbolize how dividend growth investing keeps taking your returns higher and higher without any effort from you. A straightforward way to make money.

Until they retire, a smart dividend growth investor like my father’s friend Fred, is letting his investments grow his investments.

Each year when Fred got paid out, he took the dividend payments and bought more stock with them. For the first few years, this wasn’t a lot of extra stock.

But over time, it was like watching a snowball roll downhill. As his investments grew, the dividends grew, and they let him buy even more stock, speeding the whole process up over and over again!

That means for a company like Johnson & Johnson, their dividend growth is essentially compound interest. Over that 20-year period, Johnson & Johnson has shown 9.6% annual growth on that basis! What does your bank pay on savings account interest? Ours pays next to nothing. 9.6% is incredible in comparison

But How Do I Find These High Dividend Growth Stocks?

You’ll be amazed to learn that there are 53 S&P stocks which have over 25 years of dividend increases. That is in each year for 25 or more years, these stocks reported a premium increase in their dividends.

They aren’t even a secret. They are known as the dividend aristocrats and they are:

  • 3M (MMM)
  • A.O. Smith (AOS)
  • Abbott Laboratories (ABT)
  • AbbVie (ABBV)
  • Aflac (AFL)
  • Air Products and Chemicals (APD)
  • Archer-Daniels-Midland (ADM)
  • AT&T (T)
  • Automatic Data Processing (ADP)
  • Becton, Dickinson & Company (BDX)
  • Brown-Forman (BF-B)
  • Cardinal Health (CAH)
  • Chevron (CVX)
  • Cincinnati Financial (CINF)
  • Cintas (CTAS)
  • Clorox (CLX)
  • Coca-Cola (KO)
  • Colgate-Palmolive (CL)
  • Consolidated Edison (ED)
  • Dover (DOV)
  • Ecolab (ECL)
  • Emerson Electric (EMR)
  • Exxon Mobil (XOM)
  • Federal Realty Investment Trust (FRT)
  • Franklin Resources (BEN)
  • General Dynamics (GD)
  • Genuine Parts Company (GPC)
  • Hormel Foods (HRL)
  • Illinois Tool Works (ITW)
  • Johnson & Johnson (JNJ)
  • Kimberly-Clark (KMB)
  • Leggett & Platt (LEG)
  • Lowe’s (LOW)
  • McCormick & Company (MKC)
  • McDonald’s (MCD)
  • Medtronic (MDT)
  • Nucor (NUE)
  • Pentair (PNR)
  • PepsiCo (PEP)
  • PPG Industries (PPG)
  • Praxair (PX)
  • Procter & Gamble (PG)
  • Roper Technologies (ROP)
  • S&P Global (SPGI)
  • Sherwin-Williams (SHW)
  • Stanley Black & Decker (SWK)
  • Sysco Corporation (SYY)
  • T. Rowe Price Group (TROW)
  • Target (TGT)
  • V.F. Corporation (VFC)
  • W.W. Grainger (GWW)
  • Walgreens Boots Alliance (WBA)
  • Wal-Mart (WMT)

If you think that high-dividend growth investing might be for you, you’ll need to open a brokerage account and start buying those growth stocks.

You’ll be retiring early before you know it.

Leave a Reply

Your email address will not be published. Required fields are marked *