Dividend Growth Model for Investing

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This guest article is courtesy of Tyler of Dividend Money, a personal finance blog with a heavy focus towards dividend investing.

For those of you who are new to investing or are just starting out in the world of investing in stocks, there is a lower-risk strategy that has been proven to be very powerful in producing long term returns.

This strategy is known as dividend growth investing. While it is not glamorous, there have been several books written about dividend investing and many successful investors have followed this model.

Dividend investing is geared toward those of us who are not huge risk takers and have the patience to slowly watch the increases in dividends filter into our brokerage accounts.

The concept behind the dividend growth model of investing is to buy solid, reasonably priced companies with a track record of raising their dividend year after year.

This model is thought to be prudent due to the fact that the incremental increases in the dividend rate will ultimately increase one’s dividend yield as a percentage of the purchase price. It is also thought that the increases in dividend rate will support higher stock prices over the long term as income investors search for attractive yields.

This strategy is suitable for conservative investors and income investors who want to protect against inflation. It is thought that the increases in dividend rate can be viewed as a hedge against inflation because of the additional income that the dividend increases provide.

The majority of the companies that fall into this category are relatively stable and very large in nature. Many large financial, insurance, telecom, and utility companies have a reputation for increasing their dividends on at least a yearly basis.

I’ve previously written a primer on how to select the best dividend growth stocks that will be helpful if you think that dividend investing is right for you.

I think that as you investigate dividend growth investing, you will find that it has its merits and I believe you will be pleasantly surprised with the strategy.

{ 3 comments, please add your thoughts now! }

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3 Responses to “Dividend Growth Model for Investing”

  1. Kirk says:

    Dividends use to be the primary method investors analyzed corporations. It wasn’t capital gains, but dividends that made up the majority of an investors return. Investors today are still well rewarded for investing in companies that pay their shareholders.

    There are several ETFs on the market now that focus on dividend growth strategies. Barclays has the iShare Dow Jones dividend (ticker: DVY). I am not a huge fan of this one as it relies on financial companies for most of its composition. But, there are others based on the S&P Dividend Achievers and Dividend Aristorcrats. Both focus on companies that consistently raise their dividends.

    So I agree with Tyler – Dividends are very important to investment success.

  2. Adfecto says:

    Agreed. This is a solid, time tested investment methodology that has proven results. It isn’t glamorous or exciting but if you’ve got time on your side it can yield *pun intended* great results.

    I’d like to add that this strategy is best practiced in tax sheltered accounts such as an IRA or 401(k). Dividends are taxed at an unfavorable rate compared with capital gains so put your index funds in your taxable accounts and your bonds and dividend payers in your non-taxable accounts.

  3. Roger Mendez says:


    Will you please to teach me how can I calculate “g” Gordon Growth Dividend Model? Only that I need is how to develop a calculate “g” without use the table of present value of one dolar interest factor.

    Thanks for your help.

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