I was asked the other day why I enjoy dividend stocks and dividend growth investing so much. There are many reasons that I hope to elaborate on over time in other posts, but here are five quick reasons now that explains why I love dividend growth stocks and dividend growth investing so much.

Note that I am not saying that other methods of investing are wrong or bad and I am not saying that I do not like other ways of investing – I just happen to love this method!

Dividend Growth Stocks: Love Investing in Them for Their Income Potential

Dividend growth stocks are an excellent way to generate income and build wealth over time. Dividend growth stocks offer investors a number of benefits, including a consistent stream of income, the potential for capital appreciation, and downside protection during periods of market turbulence. While dividend growth stocks may not be suitable for every investor, they can be an excellent way to generate income and build wealth over time for those who will hold them for the long term. Some stocks, such as BDCs, often pay very high yields and little price return or capital appreciation.

Over time, the dividend snowball effect will also kick in. If you are investing in dividend-paying stocks and hold these for decades, the increases in the dividend payments can amount to sizeable income potential in retirement.

Dividend Growth Stocks: Love Them for Their Consistent Returns

If you’re looking for stocks that will provide you with consistent returns, dividend growth stocks are a great option. The dividend payments provide a consistent source of income, creating a flow of consistent returns each year. This means that even during market downturns, the income from dividends will combat and counteract the downturn in prices, providing superior returns.

If you’re looking for stocks that will provide you with consistent returns, dividend growth stocks are a great option.

Dividend Growth Stocks: Love Them for Their Low Volatility

Dividend growth stocks are a great way to invest in companies that have a history of increasing their dividends year over year. While divided stocks tend to be less volatile than the overall market, they can provide investors with a steady stream of income. Dividend growth stocks tend to be less volatile than the overall market. This means that they provide more stability and predictable returns.

There are several reasons for this. First, dividend growth companies are usually large, well-established businesses with a long track record of profitability. They tend to be less impacted by economic cycles and market volatility than small-cap or mid-cap stocks.

Second, dividend growth stocks typically have strong balance sheets and generate consistent cash flow. This gives them the ability to weather down markets better than most stocks. A good example of this is utility stocks (e.g., water, electricity, or gas companies). For these reasons, utilities are often useful during tougher economic climates and often preserve wealth while maintaining dividend yields.

Finally, dividend growth stocks often have a lower beta than the overall market. This means they are less sensitive to changes in the market and provide more stability for investors.

For these reasons, dividend growth stocks tend to be some of the best-performing investments over the long term.

Dividend Growth Stocks: Love Them for Their Performance in a Market Downturn

Dividend growth stocks have outperformed the market during periods of economic decline and offer investors a number of advantages. Here are some reasons to love dividend growth stocks during a downturn. First, dividend growth stocks tend to be less volatile than the overall market, with a lower beta. The dividends also give income during a bear market, offsetting poor price performance. Second, the companies paying dividends (particularly dividend aristocrats and dividend kings) typically have strong balance sheets and generate consistent cash flow. This financial strength means they will be more able to ride out the broader economic cycles and fluctuations. Remember, though, that dividend growth stocks do not always follow the business cycle. For example, the oil and gas sector is a sector that has traditionally done well as an economic expansion matures. Pharmaceutical stocks tend to do well in many market conditions as everyone still requires medicine – consider the strength of Novartis (NVS).

Dividend Growth Stocks: Love Them for Their Psychological Comfort

Dividends are a source of comfort to many investors. There is something special about receiving cash regularly. No matter what happens with your regular ‘day job’, the fact that dividend payments keep flowing is always a comfort to me. The companies we invest in are also going to be in different sectors to those that we work in, providing further assurance and benefit; it is comforting to know that if things are tough in the ‘day job’ sector, the other sectors we invest in may be doing very well. Finally, there is something comforting about knowing that the dividend payments will continue to flow even when we have an illness or we are taking time off work. There is not much better than being on vacation and realizing dividends have been paid into the account!

Lincoln C. Wood

Dr. Lincoln C. Wood teaches at the University of Otago in New Zealand. He is an avid investor and educator. He loves cash flow, income, and dividends when investing. He likes to buy undervalued companies with strong advantages and earnings growth.