I am a dividend growth investor. The principal goal of dividend growth investing is simple: To build a reliable, steady stream of rising income.
What is Dividend Growth Investing?
It is a strategy to accumulate dividend growth stocks that provide a growing stream of income from rising dividends. The dividends are then reinvested during your accumulation years to speed up the accumulation process. Then when you retire, you stop reinvesting and simply take the dividends as income.
Depending on how much you have accumulated and other sources of income, you may not have to sell anything to create sufficient retirement income. The income is generated naturally by your investments. Studies show that in most years, the rising dividends grow faster than inflation.
Returns from Stock Investments
There are two—and only two—ways that stocks deliver returns. The historical (decades-long) average 10 to 11 percent annual total return from stocks consists of these two elements: price changes and dividends.
In the stock market, prices change constantly. Prices go both up and down, so the price component of total return can be either positive or negative over a particular time frame.
The second component of stock returns is dividends. As we know, dividends are cash payments made directly to shareholders by corporations, and the market plays no role in the dividend component of total return.
In contrast to price return, which can be positive or negative, the return from dividends is always positive, as dividends cannot drop below zero.
The total return from a stock over any time period is the sum of the two components just described, leading to this most fundamental of equations:
Price Change + Dividends = Total Return
Total return is normally computed on an annual basis.
See this article: Nirvana for Income Investors: Dividend Growth Meets Low Volatility
Over the long-term, dividend growth has proven to lead to strong performance. According to Ned Davis Research, over the past 30 years through 2012, the dividend growers (and initiators) in the S&P 500 have an annualized return of 9.5% compared to 7.2% for dividend payers that didn’t consistently boost their dividends. Stocks in the index that didn’t pay a dividend limped in with a 1.6% annualized gain.
Blogging My Stock Investments 