Guide to Dividend Growth Investing

Summary and next steps

The Path to Meaningful Dividend Income

Let’s go back to where we began. That unique happy place each of us have, where our worries fade so a sense of calm can emerge. It might be on the beach, on the slopes or it might just be on a hammock with a good book. Wherever your happy place is, we imagined a world where we find our inner peace while at the same time our accounts get filled with dividend checks without us lifting a finger. 


This is the dream of passive income powered by dividend growth investing.


The reality is that realizing this dream is long and winding. It will take time, discipline, savings, some degree of sacrifice today, informed investing, and re-investment. 


Dividend investing is the tortoise vs. the hare race in the wealth creation world, where the tortoise wins in the long run. 

While it may take a while, dividend growth investing is the most available method of generating passive income that I’m aware of. 
We are going to need motivation to persist on this long, windy road to financial freedom. I know for me I will need more than the motivation of sitting on a beach to persist towards my goal of financial freedom. I suspect if you have read through this guide you are the same type of person – not satisfied with sitting on a beach endlessly. 


We need goals that give us purpose for setting out on this long journey. If your chosen goals are to truly motivate you, to cause you to stay on course with your savings and investing goals, it’s critical you go beyond vague goals like – “I want to be a millionaire”.  It must touch on that life aspiration or human emotion that can motivate you, over the course of your working life, to go into overdrive in pursuit of an important goal.  For me, it’s gaining the financial freedom in life to pursue the sort of work that inspires and fulfills me, while providing a comfortable and enriching lifestyle for my family. The more specific the better. For example, I’ve got long term goals to take extended periods of time off from work (mini retirements) to travel the world with my family, provide my children with a great education and to help my kids get started on their own wealth creation path without doing the hard work for them. 


Whatever financial freedom would inspire you to do – pursue advanced education, volunteer, travel the world, philanthropy, leave a financial legacy for your kids; choose your wealth goals carefully.  They are your guideposts.


Once you’ve set your wealth goals it’s important to get tactical. How much dividend income will you need and by when? This will affect how much you need to save and invest each year and the time horizon you will need to realize your passive income goals. Let’s look at a few different scenarios to see how these factors affect your ability to achieve different levels of passive income and what’s realistic from where you are starting today. 

The delta between $28K per year and $80K per year is significant. There are several factors that you have some control over that will determine where you fall in this spectrum, and even better, whether you can exceed the $80K ceiling projected in these scenarios: 

  • Increase your income over time by upskilling and gaining career experience so that you can invest more as part of your monthly investment contribution. Most people will start small with their monthly investments and then grow this over time as their income expands.

  • Use your annual bonus, RRSP refund and other annual lump sum payments to top up your annual investment contributions. This may mean getting a gym pass instead of installing a gym in your house when bonus time arrives.

  • Start a side hustle business that you can then use proceeds from to invest in growing dividend investments.

  • Get started with regular dividend investment contributions as early as possible. All is not lost if you did not start investing in your 20s but get started today if you are still procrastinating!

  • Use the dividend re-investment plans offered by the dividend paying companies you have invested in.

  • Automate your saving and dividend investing to avoid life getting in the way of achieving your financial goals. Whether it’s that unexpected car repair, a desire to take an unplanned vacation after a stressful few months at work, or some other valid excuse; human beings just aren’t wired to deprive themselves today for the promise of a great retirement in the future. The most fail-safe and effective way to build up a dividend asset base is to set up pre-authorized biweekly or monthly contributions that automatically transfer money from the deposit bank account for your paycheck into your investment account.

  • Take advantage of “free money” when its available, whether it’s company matching of your retirement account contributions or employee stock purchase plans. Don’t leave “free money” on the table.

  • Choose dividend stocks that have excellent annual dividend growth rates with the capacity to continue this into the future. Dividend growth rates have a significant impact on your projected dividend income. For example, adding just 1% pts to the annual dividend growth rate achieved in your portfolio assumed for the “Late Starter, Major Contributor” scenario above results in an additional $10K per year in annual dividend income at time of retirement. Adding an additional 2% points to the annual dividend growth rate results in $56K in annual dividend income as compared to the $30K per projected for the “Late Starter, Major Contributor” scenario. As high dividend growers start to mature, their ability to grow their annual dividends at such a high rate may diminish. Make sure you are revisiting your dividend picks regularly to see if your money could yield higher growth with an emerging dividend star.

This guide has covered a lot of ground, now it’s time to put this knowledge to work.

Action Plan

  1. Inspire yourself with your annual dividend income projections – play around with this Investopedia dividend calculator: https://www.investopedia.com/calculator/dvcal.aspx, stretch yourself to see what different monthly investment contributions will achieve.​

  2. Get started today, open an investment account if you don’t have one today and start researching and buying quality dividend stocks. Sign up for my newsletter here to receive my upcoming special Top 10 Dividend Stocks below. 

  3. Set up pre-authorized biweekly or monthly contributions that automatically transfer money from the bank account that your paycheck is deposited into, to your registered savings plan or investment account. Select a cadence that you will use the accumulated capital to buy dividend paying stocks, maybe every two or three months.

  4. Call your investment broker and set up DRIPs for all eligible stocks.

  5. Start working towards the harder stuff, whether it’s increasing your income or savings rate. These take time, but it’s important to start planning and working towards them if you are going to achieve them. For example, start taking the training courses you need to increase your income over time.

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