A dividend-paying company that experiences growth year over year, is covering its expenses and has continuously more cash flow than the previous year are candidates for dividend growth investing. These companies usually slowly increase the dividends they pay to shareholders due to their continuous growth.
Dividend-paying businesses are seen by many investors as dull, low-return investment opportunities. Dividend-paying stocks are typically more mature and reliable compared to high-flying small-cap firms, whose volatility can be pretty exciting. While for others, this may be boring, the combination of a consistent dividend with a growing stock price may give a potential.
This dividend-focused approach has been used by many investors for decades to buy shares in household names including Coca-Cola, Johnson & Johnson, Kellogg, and General Electric. Imagine a company's earning power that is rising so much as to maximize its payout. Actually, between 1966 and 2008, this is what Johnson & Johnson did every year for 38 years. If you had purchased the stock in the early 1970s, the dividend yield you would have received on your initial shares between then and now would have risen annually by around 12 percent. By 2004, your earnings from dividends alone would have earned your initial shares a 48 percent annual return!
To conclude, Dividends may not be the hottest strategy out there for investment. But with these "boring" businesses, using time-tested investment strategies can produce returns that are anything but dull over the long term.
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