Why I like dividend growth investment strategy

There are many ways to get rich and one of the ways is investing in stocks, which means buying a little piece of a business. For example, if you are buying 25 stocks of Wal-Mart (wmt), then you are buying a piece Wal-Mart business. So, you have the right to get a piece of profit in the form of dividend. Some companies don’t pay dividend, they use their profit to invest more in their business or acquire other companies with similar business model, example Google. Now look at the dividend growth investment strategy and see why I like this strategy.

Dividend growth stocks means stocks that have a history of raising dividends in a consistent basis. Let’s take a quick look at a well know retail store Wal-mart. This retail store chain was originally founded in 1962. It employs over 2.2 million people across the US and around the world. It has a network of stores in emerging markets and is eying further expansion around the world. It generates billion of dollars profits seemingly every year.

Now you can see, how Wal-Mart is a great company that’s in the history of raising its dividend. Now let’s look this in a practical term. If you would have bought Wal-Mart stocks in March, 2000, they would have cost you $45 each with a dividend of $0.24. They would have paid you 0.53% a year which is very low when you compare with the interest on most savings accounts. In 2013, the dividend per share would have grown to $1.88 per share. You would be earning (1.88/45 * 100%) almost 4.18% a year on your original investment and the value of your shares would have also grown.

The important thing is to focus on quality companies that should be able to increase their dividends for many years. Please note that this is a long term investing strategy. If you want to get rich quickly, this model doesn’t suit for you. You may need to look at some ‘hot’ trend like facebook, twitter, etc.

Disclaimer: I’m long on Wal-mart stock.