Dividend Growth Investing

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Introduction

Dividend growth based investing is an active management style that focuses on stocks with a long history of dividend increases. The objective is to produce a steadily increasing income stream that is immune to market fluctuations.

Selection

Sources

There are various ways of selecting suitable candidates that are increasingly do-it-yourself. One can subscribe to a newsletter and do no analysis. One can choose from a universe such as Mergent's Dividend Achievers or S&P's Dividend Aristocrats. Or one can screen a database using personal selection criteria.

Alternatively, one can choose not to buy individual stocks but rather to buy an exchange traded fund (ETF) or a mutual fund, either index or actively managed, that focuses on dividends.

In choosing a fund, one must be comfortable with the selection criteria or investment objectives and guidelines.

Chasing Yield

A high yield is often the result of a distressed stock price although not always. For example, regulated utilities usually have relatively high yields because they payout a high proportion of their net earnings. It is important to choose stocks with sufficient cash flow to cover the business, the dividend and the growth of both.

Further Reading

• Miller, Lowell. The Single Best Investment. Adams Media Corporation. 2000
• Neff, John. John Neff on Investing. Wiley. 2001
• Weiss, Geraldine and Lowe, Janet. Dividends Don't Lie: Finding Value in Blue-Chip Stocks. Longman Financial Service. 1990