The Power Of Growing Dividends

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Today we’ll explore the power of growing dividends and how dividend growth stocks can supplement what you may be missing from a raise at your job.

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The Power Of Growing Dividends

Highlights

• Dividend Achievers, Aristocrats, and Kings are classes of dividend-paying stocks

• Dividend raises help outpace inflation and provide a passive income stream that can be used to cover expenses.

• Investing in dividend stocks can provide a raise that is higher than what is typically offered in a job.

My History With Salary Raises

I’ve been disappointed by every raise I’ve ever gotten at a job.

I started my first job at the age of 16 in a family owned bakery and coffee shop. I worked long, hard hours 7 days a week to make money in high school and in my first couple years of college.

After working there a little over a year, I decided that I wanted to ask for a raise. I was nervous and had never asked for a raise before in my life. I remember approaching my boss to ask her and much to my surprise, she said yes. She told me to look out for the new raise on my next pay stub.

A week passed and I’m eager to open my paycheck. I rip it open and saw that I was given a $0.20 raise. Immediately I felt disappointed and I soon realized that it’ll take me 5 hours to earn 1 extra dollar and that's before taxes.

Fast forward to the summer of 2022 and I’m now a teacher. In the school district I work in, the teacher’s union has to renegotiate the teacher’s contract every 3 years and 2022 happened to be that year.

We almost began the 2022-23 school year without a contract. Over the summer the teachers and the school department spent days debating the teachers’ built-in yearly raises. It nearly caused us teachers to begin the year without a contract. Eventually, the teachers and the school department settled on a number for yearly raises:

1.75%.

Heartbreaking, especially when the Federal Reserve has a 2% inflation target. In an ideal year where inflation is 2%, my raise would really be -0.25%. If inflation is 7% today, my raise is really -5.25%.

I knew I needed some help from somewhere if I was going to try to keep up with inflation.

Why I Choose Dividend Growth Stocks To Help Give Me Raises

As you’ve probably heard, inflation is running rampant this year and hovered around 7-8%. This means from 2021-2022, your money has 7-8% less purchasing power. A dividend received today will be worth more than a dividend received next year as long as inflation continues.

With that being said, in my opinion it’s important that a company not only pays a dividend, but raises it at least annually.

If a company doesn’t raise its dividend and inflation is 7%, then your dividend just became worth 7% less. Companies that raise dividends higher than the rate of inflation help you can combat the lessened purchasing power of your money.

In addition to the yearly raises you can receive from dividends, you can also reinvest those dividends to buy more shares. Those new shares, in turn, pay more dividends. If you ever needed to, you could use some of your dividends to cover any expenses that may arise as well.

To sum up why I love dividend growth investing:

• Yearly dividend raises help outpace inflation

• Each dividend raise helps you buy more shares when reinvested

• Dividends provide a passive income stream that you can pull from if needed

Now the question becomes: how do you know which dividend stocks are reliable?

There are 3 different classes of dividend-paying stocks which I like to call Dividend Royalty. We’ll explore each class further in the next section.

Dividend Achievers, Aristocrats, and Kings

Dividend Achievers are companies that have 10+ years of consecutive dividend growth. The Achievers consist of companies like Apple, United Healthcare and Visa. These fast growing companies have the ability to greatly raise dividends for years to come so long as profits keep growing.

Dividend Aristocrats are companies that have 25+ years of dividend growth. Some well-known Aristocrats are McDonald’s, Sherwin Williams, and Exxon-Mobil. These companies are more established and have a long history of dividend growth.

Dividend Kings are companies that have an astonishing 50+ years of uninterrupted dividend growth. They are the pinnacle of consistency in the dividend world. Members of the Dividend Kings include world-renowned companies such as Johnson & Johnson, PepsiCo, and Target.

I hold a diversified basket of Achievers, Aristocrats, and Kings but I focus more on Dividend Achievers. They’ve shown me they can maintain at least 10 years of consecutive dividend growth and they have a longer timeline for dividend raises compared to a Dividend King.

I do hold Aristocrats and Kings to provide my portfolio with stability and consistency. A company with a longstanding history of dividend growth is unlikely to cut its dividend unless it’s a last resort.

My Most Recent Raise

Recently one of my holdings Waste Management raised their dividend by 7.7%. Not an earth-shattering raise, and it barely keeps pace with inflation.

Regardless, I was very happy with the raise. Why?

2 reasons:

1. 2022 was a tough year for nearly every business and the fact that one of my holdings can still raise its dividend is a plus

2. I never received a 7.7% raise from any of my jobs and I work hard on my feet full-time there. Without lifting a finger, I received a raise from a company I own. This plays into a realization I had when I first became a dividend investor: I can’t always work for my money, I have to get my money to work for me.

I’ve also realized that I may never get the raise I deserve at my job, and I can’t control that.

On the other hand, I can control where I invest money and I can choose to buy stocks in companies that do reward me with decent raises.

Final Thoughts

Dividend Growth Stocks have provided great investor returns over the years.

By providing annual raises to their dividends, Dividend Growth Stocks have helped investors stave off inflation. In my case, they've even filled in some of the gaps left behind by lackluster raises at my job.

Here at The Dividend Growth Newsletter, we've talked about how dividends are generally taxed at lower rates than other forms of income. This makes them an even more attractive option for investors looking to maximize their return on investment.

With Dividend Growth Stocks, there's plenty to like!

Links & Memes

I know I’ve been dunking on SBF for the past few weeks but this is just gold:

This bootleg Avengers movie is hilarious, they really threw every superhero in that MF:

Insane footage of a moose shedding both antlers at the same time:

This one is for my Formula 1 lovers and cat lovers:

I don’t even care that this dunk didn’t count, it’s absolutely unreal:

Rest In Peace soccer/football legend Pelé who died recently at 82 years old. This insane thread breaks down a bitter rivalry between 2 brothers, 2 world renowned businesses and Pelé himself:

I’ll leave you with a beautiful field of sunflowers:

Happy 2023, set your goals and crush them! You got this!

Don’t forget to check out my website full of awesome free resources to jumpstart your investing! 👇

Dr. Dividend | Linktree — linktr.ee

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Disclosure: The contents of this newsletter are in no way intended to provide financial advice. Dr. Dividend may have positions in any of the stocks mentioned and this newsletter is in no way intended to promote buying or selling of any investment security. Please do your own research before investing in anything. This post may contain affiliate links and Dr. Dividend may receive compensation through the usage of any affiliate links.