Dividend Increases: A More Realistic Way to Get Rich
It never stops.
Friends, family and acquaintances think that because of my job, my pockets are stuffed with winning lottery tickets. All I have to do is pull one out and give it to them.
Below is an actual text I received last week from a friend.
Another guy recently demanded I give him a winner. “I need to make some money,” he said.
I explained that if he doesn’t have much money, he shouldn’t be buying risky stocks or other investments.* If he was serious about building his wealth, I’d send him a copy of my book, Get Rich With Dividends. He refused the offer. “I just need to make some money,” he reiterated.
It’s easy to get caught up in bitcoin fever or speculate in biotech or other high-flying stocks. And you can make a lot of money that way.
But there are significant risks to those investments, and if you don’t have a strong foundation already, you will not be able to handle the ups and downs of speculative trades.*
It’s why I always recommend investors first build a portfolio of Perpetual Dividend Raisers – stocks that raise their dividends every year.*
Stocks with annual dividend increases significantly outperform the market and tend to fall less during bear markets and corrections.
According to Bloomberg LP, Dividend Aristocrats are members of the S&P 500 that have raised their dividends every year for 25 years. Since December 1989, when the Dividend Aristocrat Index was created, Dividend Aristocrats have outperformed the S&P 500 2,297% to 1,243%, including dividends. That’s a greater than 1,000% outperformance.
And when a bear market hits, collecting the dividend makes it a little easier to handle the lower prices, especially if you’ve owned the stock for a while and the dividend has gone up every year – you could be collecting a strong yield.
Making 5% in dividends definitely takes some pressure off your portfolio in a correction or bear market.
The next time someone asks me for a “tip” on how to make money (and they will), my advice will be the same: Buy great companies that raise their dividends every year and hold them for the long term.*
That’s how you turn $1,500 into $2,500. Maybe not as quickly as JD would like, but with a much higher likelihood and much lower risk.
*The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of professional analysts.
About Marc Lichtenfeld
A master of the steady, reliable science of income investing, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report. He has also appeared on CNBC, Fox Business and Yahoo Finance. His book Get Rich With Dividends: A Proven System for Double-Digit Returns achieved best-seller status shortly after its release in 2012. He captures the hearts and minds of readers approaching their golden years in his daily e-letter, Wealthy Retirement.