When Wouldn’t You Invest in Dividend Growth?

When I wrote my book Get Rich with Dividends 10 years ago and launched my newsletter, The Oxford Income Letter, eight years ago, the focus was (and remains) dividend growth – for one simple reason. I want to help readers increase their buying power every year.

This isn’t a strategy designed to hit home runs and generate 1,000% returns in a matter of weeks – though quite a few stocks are up many hundreds of percent over the past few years. We’re never shocked when these stocks deliver big returns because they’re extremely healthy companies that are growing their cash flow, which should lead to higher stock prices.

But the goal is to make sure investors are getting paid more each year from their investments than the year before.

We know that life gets more expensive as the years go by and as we get older. All kinds of costs go up, like healthcare costs and other expenses. So we need to make sure our income is at least keeping pace with those higher outlays.

For the first nine years of the book’s existence and the first seven years of The Oxford Income Letter‘s existence, inflation wasn’t something people were too concerned about. It remained extremely low – below 2%. And while you may have noticed some things getting more expensive, no one was complaining too loudly for the most part.

That being said, even a little amount of inflation means you’re paying more today than what you paid yesterday. So you need more cash today than you needed yesterday.

But now, suddenly, inflation is on everyone’s mind. Over the past year, inflation has risen 5.4% – the most in decades.

In July alone, the cost of steak, ribs and pork roasts jumped 4.4% over the previous month. Gas is 41% more expensive than this time last year, and women’s dress prices have shot 19% higher in the past year.

So in the past decade, if you were fortunate to own a stock like Broadcom (Nasdaq: AVGO), which is a current recommendation in The Oxford Income Letter, you saw your dividend payments increase an average of 46% per year. Imagine if you’d gotten a 46% raise at your job every year for 10 years.

That’s not a typo. Over the past 10 years, Broadcom boosted its quarterly payout from $0.08 per share to $3.60. It has raised its dividend every year for 12 years straight. And I expect another substantial increase in December.

Or take Illinois Tool Works (NYSE: ITW), which has raised its dividend every year for 58 years – since Kennedy was in office. Over the past 10 years, it has lifted the payout to shareholders by an average of nearly 13% per year.

While inflation was low, if you saw a 13% or 46% annual raise, no doubt your buying power increased significantly.

Today, with the prices of many staples going through the roof (and roofs also being more expensive to repair – if you can find a roofer), you need that protection to your buying power more than ever.

Whether we’re in a low-inflation environment or a bubble of prices rising faster than they have since the 1980s, dividend growth stocks protect and grow your buying power. There are very few other investments that can make the same claim.

Good investing,

Marc