Most beginners who want to make money from dividends look exclusively at who pays the highest percentage right now. The Dividend Growth investor thinks completely differently. They look for companies that might pay a small dividend today, but aim to increase their dividend every single year going forward.
"Prepare for what you have asked for, and it will be given to you."
— Florence Scovel Shinn
Asking for a steadily growing income requires preparation. You have to find companies that have such a strong business model that they manage to make more money year after year, regardless of whether there is a financial crisis, a pandemic, or high inflation.
The power of compound interest
Yield on Cost: If you buy a stock for 100 kroner that pays 3 kroner in dividend, the yield is 3 percent. If they increase the dividend steadily, and pay 10 kroner ten years later, you suddenly have a 10 percent annual return on the original 100 kroner you invested!
Advantages of the strategy
- A company that increases its dividend year after year is a fantastic sign of quality. Management is disciplined and in control.
- Dividend growth protects your purchasing power against inflation.
- You are rewarded with increasingly larger payouts without having to lift a finger.