The Game of Dividend Growth Investing

posted in: Budgeting | 0

 

I never really quite get when people question the power of limiting spending and controlling a budget. I still to this day have friends that think it’s crazy to give up certain luxuries to save $30. It’s a somewhat fair point on both sides. I see the progress that I’ve made by saving 50+% of my income for the last 7 years.  Why shouldn’t I enjoy a nice meal out without worrying about the cost? On the other hand, they just don’t understand the pleasure, joy, and more importantly progress of what I have going on in the background, and that is my game of Dividend Growth Investing.

Let’s take a closer look at why this can be considered a game.  I don’t mean to imply that money is NOT important, of course. 🙂 It’s a game because you try to constantly improve upon your financial situation.  And I’d venture to say there are HUNDREDS of ways to do it on a daily basis.  Skipping meals out, avoiding unnecessary shopping, look for grocery store sales, skipping the toll road, using cell phones less, sell unused stuff, driving less, shopping around for insurance. You get the idea. Hundreds of chances to improve your financial future. Every day.

Every time you save a couple of extra dollars, you can turn it into real progress that can be seen within 3 months. People say that investing in 401k accounts is boring because you won’t see the money for another X amount of years when you are old and gray. Investing/Saving doesn’t have to be boring.  Also – side note – I think 401k’s are a perfectly reasonable way to invest, although certainly less fun. 🙂

Dividend growth investing is very different. If I buy a share of AT&T stock (one of my recent favorites) with $42 that I didn’t spend on eating out one night, I see the effect almost immediately in the form of an extra $0.49 coming my way in dividends during their next payout. This $0.49 will not only keep coming every 3 months, but it will also most likely increase every year (AT&T has raised its dividend for 30 straight years).

Skip 2 meals out, cancel an unused gym membership, find a better deal on car insurance, live in a smaller house, etc and you are looking at a lot of extra quarters (okay okay, 49 cents) lying around the house that keep showing up constantly. You know that feeling when you pick up a penny on the street? Or lift up your couch cushion and find change (or was that just in college?). I’d imagine there would be a lot of internal joy if you were just constantly finding quarters on the floor of your house every month.

By skipping an occasional expense, know that you are not necessarily delaying the gratification until you are 60 years old as you can see the money coming back within months in the form of dividends.

The name of the game is to see consistent growth within our monthly income. The best part of this game, is that while its infinitely FUN to play (who hates more money?), its always very easy to win. Companies tend to increase dividends year after year (if you are investing in the right companies). Therefore, in a given year of a portfolio of owning 10 stocks, 9 might increase their dividend payout and one might decrease theirs. Therefore, we are WINNING by increasing our income, even if we don’t invest more of our dollars.

As more and more money goes into our investments, the dollar amounts on these increases become more meaningful.

Let’s look at a recent example: My latest increase came from CVS. They decided they wanted to be awfully generous and give all shareholders a 17.65% increase in dividend payout. Given that I currently own a healthy chunk of 91 shares of CVS, this equates to an increase of $27 per year (that’s 108 quarters for those of you who are still working on the visual!) of extra money for our household. That’s winning without effort.

I often post my growth chart (below). I invest extra money in my portfolio on a weekly basis, but its important to note that I wouldn’t have to to see growth in my income. So far, I have only experienced 2 dividend reductions in 2 years while having dozens of increases announced. This is also winning without effort.

Month Dividends % Increase  Month Dividends % Increase  Month Dividends % Increase
01/2016
$77 –  02/2016 $168 –  03/2016 $436  – 
04/2016
$106 37.6% 05/2016 $201 19.6% 06/2016 $585 34.2%
07/2016
$139 31.1% 08/2016 $256 27.4% 09/2016 $964 64.7%
10/2016
$237 70.5% 11/2016 $252 -1.5% 12/2016 $1096 13.7%

 

Life is meant for enjoying.  I get it.  But just don’t fall into the trap that saving money is not fun.  It is, in fact, very fun to get free money every month.  I’ve built a fairly robust income of almost $500 per month without having to know every detail of the stock market.  It’s actually quite easy to pick the safe stocks.  I’d start here at the dividend aristocrats list (companies that have raised dividends for over 25 consecutive years).  Pick the ones you recognize.  It’s as easy as that. If you are interested in learning more, there’s more information about what to look for here, where I introduce my 5 foundation stocks.

The money our investments produce will mold our future lives. Will we be able to retire early? Start working part-time? Pursue a passion? Take a trip? Pay for college? This is really fucking important stuff. I’m guessing you know this because you are here. It’s just a bonus that it happens to be fun to experience progress towards a goal so easily. That’s why this is my kind of game.

 

Thank you for stopping by.

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http://monthlycents.com/2017/01/02/the-game-of-dividend-growth-investing/

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