Tuesday, May 14, 2019

Why I Chose Dividend Growth Investing

While I'm a huge proponent of dividend growth investing, I don't believe I've ever taken the time to explain my the rationale for why I'm a dividend growth investor. Ever since I learned about the DGI movement 5+ years ago, I've become absolutely obsessed with it and the possibilities that it can bestow upon someone that diligently and consistently invests capital over time. Without further ado, here are five reasons I'm a dividend growth investor.

First Reason: I Love To Own Companies Whose Products I Know And Love

As I alluded to in my blog post discussing the tangibility aspect of dividends, this is one of the major selling points for dividend growth investing, in my opinion. One can drive into their town and be greeted with the likes of companies such as Royal Dutch Shell (RDS.B) gas stations, Exxon Mobil (XOM) gas stations, BP (BP) gas stations, a CVS Health (CVS) store, an AT&T (T) store, and within those stores products of companies such as PepsiCo (PEP) and Johnson & Johnson (JNJ).

The core of my portfolio is comprised of companies whose products and services I use on a constant basis. As a shareholder in PepsiCo, I find myself buying Aquafina water on a weekly basis while also eating Lay's chips on a weekly basis. Simiilarly, my phone's wireless service is through Cricket Wireless, which as you might guess, is a wholly owned subsidiary of AT&T. 

Graham of Reverse The Crush had an excellent piece on method investing a couple months back, and before that article, I didn't even know it but I was also somewhat of a method investor. 

It's really great when you're able to purchase pieces of ownership in a company whose products you believe in and use on a consistent basis, which is one of the major reasons I chose DGI.

Second Reason: I Can Focus On Cash Flow To Measure The Success Of My Portfolio

The benefit to DGI is that rather than focusing on the value of your investment portfolio, you're able to continually focus on the income the portfolio is producing for you. This reduces the chances of you acting on your emotions and doing something stupid that you shouldn't do.

I believe the mere fact that most investors dramatically underperform the broader market is because they let emotion influence their investment decisions. Part of that could be because rather than seeing the companies in their investment portfolio as excellent companies to own for the long-term, they choose to rent them and try to flip them for a profit.

I view stocks in a completely different manner. While net worth is a cool metric to gauge your progress, I prefer focusing on cash flow to measure the success of my portfolio. After all, portfolio value is entirely dependent upon the mere opinions of the market over the short-term. However, as the legendary Ben Graham put it, "In the short run, the market is a voting machine but in the long run, it is a weighing machine." I believe that while the market is inefficient over the short-term and medium term (and this presents opportunities for stock pickers that indexing simply doesn't), everything evens out eventually and stocks receive the valuation that they deserve over the long-term.

At the time of my writing this article, I am receiving $544.40 in annual dividend income from dozens of excellent companies simply for owning their shares. Given that I don't plan on selling these shares ever (unless fundamentals of the companies deteriorate), I really could care less about the value of my portfolio. I'd actually prefer it go down so I could double or triple down on the stocks that I own.

Third Reason: You Don't Have To Sell Your Portfolio Off Constantly To Raise Capital

I won't explain this point in too much detail as I believe the post by Jason Fieber over at Dividend Mantra titled "Why I Vastly Prefer Dividend Growth Investing to Index Investing" so eloquently proves this point.

As one may guess, yield matters and with the S&P 500 currently yielding a paltry 1.86%, this simply isn't enough for most investors to live off of unless they have over 50 times expenses saved up. 

Having to sell of wonderful assets at valuations that are dictated by the market because of the extremely low yield seems undesirable to me when an investor could pick companies that are more fairly priced with higher yields to support one's lifestyle without having to sell off assets just makes more sense to me.

Fourth Reason: DGI By Its Nature Invests In Only Quality Companies

While there are the inevitable General Electrics in every portfolio eventually, the companies an investor invests in as a dividend growth investor are by their very nature fantastic companies. The bedrock of most DGI portfolios in this community is built upon the Johnson & Johnsons, PepsiCos, and Realty Incomes of the world.

As one could imagine, it takes a fantastic company with a great business model to sustain dividend increases long enough to become a Dividend Champion or Aristocrat. 

Even if a company contributing 3% to an investor's overall dividend income completely suspends their dividend, the other 97% of an investor's dividend income will likely increase more than enough to make up for the elimination of the dividend by that one company in the portfolio. 

Fifth Reason: I Love The Process Of Investing

While DGI may not be for everyone due to the amount of work that goes into the selection process of stocks and monitoring them periodically, I love investing. I wouldn't have it any other way. While I also enjoy following my Milwaukee baseball and basketball, and Green Bay football, there's just something about investing that I enjoy more than my other hobbies and I can't really put it into words. 


Discussion: Do you DGI? If not, what investing strategy do you use? As always, thanks for reading and I look forward to replying to your comments.


  1. Thanks for sharing your reasons for DGI, Kody! I agree with all of them 100%. I also really appreciate the shout out to my Method Investing post! Thanks so much! I really like your point about companies you know and love. These are definitely in line with Method Investing! Hope you're doing well!

  2. Graham,

    I'm glad you enjoyed the post and it only felt right to include your post considering I was bringing up the first point. Thanks for the comment!