Unlocking the Secret of Dividend Growth Stocks: Your Essential Guide to Smart Investing.

#Money Talk: Understanding and Investing in Dividend Growth Stocks

If you’ve been wondering about investing and the stock market, but always seemed too complicated and a game for the rich, you’re not alone! But guess what? Things aren’t as scary as they seem. Here, we’ll chit-chat about dividend growth stocks and how you can start investing in them.

Okay, so you’re asking, “Where do I start with stocks?” It’s a common question and one I had when I started playing the financial markets game. After a few years of research and experience, I’ve found that a wise investment strategy is to look at dividend stocks and growth stocks.

In this article, I will unpack how to forecast the potential return of dividend growth stocks through a real-life example.

Now, I bet someone’s told you that investing should start in your 20s to take advantage of compound interest. While that’s true to some extent, remember this—it’s NEVER too late to build a stock portfolio and start earning passive income with high dividend stocks.

Let’s simplify investing and focus on dividend investing and dividend growth stocks. By the end, I’ll give you a hands-on example of the returns of a dividend growth stock.

## What’s a Dividend?

Dividends are a part of a company’s profit shared with shareholders, like a high five for putting faith in the company by buying its shares. Here’s the deal—not all companies pay dividends, with factors like industry and market position influencing this. The decision about sharing profits with investors is also closely tied to the company’s cash flow management—should they pay investors or plow back into the business?

Typically, seasoned companies having maxed out their growth scope can afford to pay high dividends. These companies usually belong to stable sectors like utilities, oil and gas, and basic materials—imagine cash cow businesses!

In contrast, the tech sector—which needs to keep innovating and investing in research and development—welcomes very few companies able to pay dividends.

## How Does Dividend Payment Work?

The company’s board of directors decides on the method, frequency, and amount of dividends. They can be paid with cash or additional shares. Each method has its perks and downfalls.

Your cash dividend payment would be taxed twice, firstly as the firm’s corporate tax and then as your “long term capital gains.” But if dividends are in shares, you get new capital ready to be reinvested, although you won’t have the extra cash flow in your bank.

The amount of dividends paid is often communicated as a percentage, called a “dividend yield.” To determine whether a company’s dividend yield is sustainable, the payout ratio (total dividends divided by net gearings) is used.

The payment frequency of dividends is also decided by the board of directors, varying from quarterly to monthly, often influenced by their sector.

Also, you need to keep an eye on the “ex-dividend date,” as you must own the company’s stock before this date to receive the dividend payment.

## Dividend Payments: Something Extra?

Companies might also pay out special or non-recurring dividends as a bonus to investors, which usually heralds good times for the company.

## Growth vs Dividend Investing

When talking about stock investment strategies, the conversation usually hovers around these two poles: growth and dividend investing.

Under ‘growth investing,’ you’d be buying stocks from companies with solid fundamentals in high-growth sectors and aiming for above-average earnings growth. The fun part of growth investing is that the returns can be higher than a dividend portfolio. But it needs upfront research and constant monitoring.

On the other hand, ‘dividend investing’ is more like steady income with companies that are stably established. The slight downer is that dividends are double taxed. Also, dividend companies’ shares are usually stable in value so the income generated is mainly through dividend payout and typically not price appreciation.

## What Are Dividend Growth Stocks?

These are companies that provide high dividend yield and have significant growth potential promising to increase its dividend payout over time. So, with a dividend growth stock portfolio, you can benefit from both dividend payments and share price appreciation.

Not to forget the “Dividend Aristocrats”—companies featured in the S&P500 index that have consistently increased dividends for the last 25+ years. They are pretty much the champions in the dividend stocks league.

## Time to Dive into Dividend Investing?

If you’re eager to hop on to the dividend investing journey, here’s a recommended route. Check out the Dividend Aristocrats list, pick a company, and perform a similar analysis as we did earlier. You’ll learn to navigate financial content on the internet and search for stock prices and info. Then, research the company’s technical and fundamental aspects. Finally, open a paper account—it lets you understand the stock market world without any risk.

## Asking the FAQ

You might be wondering if dividend stocks grow in price. That depends on the particular type of dividend stock. However, with dividend growth stocks, you can generally expect an average return similar to the market.

Which dividend growth stocks are the best buys in 2023? Those with a reliability and profitability history would be a good start. The Dividend Aristocrats list is a good reference, from which you can further filter based on dividend yield, payout ratio, and more.

If you’re asking how much you need to live entirely on dividends—it depends on your lifestyle! If you need a gross income of $3,000 per month, you’d want a dividend portfolio generating at least $36,000 per year. Assuming a 10% annual dividend yield, you’d need to invest $360,000.

## Investing Platforms
Here are a few investing platforms you might consider.

– Public: Offers commission-free trades of stocks and ETFs.
– Moomoo: Provides commission-free trades of stocks, ETFs, options, and ADRs.
– Webull: Allows commission-free trades of stocks, ETFs, options, and cryptocurrency.

Happy Investing!

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