If you want to find a get rich quick strategy for investing, then you probably won’t like this article.
1. Start as Soon as Possible
If you follow a dividend growth strategy, then compounding interest will be your biggest ally. So the sooner you start investing, the more time in the market you will have at your side.
Starting to invest in your early twenties (or even sooner) gives you time to let your assets (i.e. stocks) grow in value and earn income. Then that income (see #4) can be reinvested so that it can earn even more income.
Note – If you are under that age of 18, then you will need to open a custodial account. I recommend choosing a low cost broker that offers custodial accounts like Stockpile.
2. Find a Low Cost Broker
Chances are if you are just starting out investing in the stock market, you may not have a ton of money. Even if that is not the case, you still don’t want to spend a bunch of money on brokerage commissions and fee’s.
No cost brokers let you stretch your investment dollars further and make it possible for you to start buying stock for less than $100 without any worry.
3. Reinvest Your Dividends
Once you get your portfolio up and running, it is crucial that you reinvest your dividends. You need to take advantage of compounding interest.
Let those dividends dollars you earn work for you to earn even more income. This is key to a dividend growth strategy.
Since you hopefully started investing early on, you have time on your side. And having more time in the market allows your assets to earn compounding interest over and over and over again.
No matter how small, keep reinvesting those dividends and watch your portfolio grow.
4. Diversify Your Portfolio
Dividend stocks come in all different shapes and sizes of companies.
There are your traditional blue chip, boring dividend stocks that yield around 2.5% to 3.0%.
Then there are your high growth/lower yield stocks that have the potential to eventually become one of those boring stocks mentioned above. Companies from this category may not have the history that the others do and are usually riskier dividend investments … but they have a ton of potential.
Finally, there are other higher yielding companies like real estate investment trusts (REIT’s).
It is extremely important to diversify your dividend growth portfolio across many different stocks. This will help reduce any risks from companies that may unexpectedly cut their dividend.
Diversify across different sectors (i.e. Consumer Goods, Financials, etc.), companies, and types of dividend stocks. We generally maintain a portfolio of around 30 stocks at one time.
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