Dear DTA,

My goal is to make the best investments possible. We need to retire soon.

-Frances B.

Great to hear from you, Frances. Thanks so much for writing in.

Your concern about making sure you’re making the right moves with your money so that you can retire appropriately is one that many people share – nobody wants to waste money, and nobody wants to retire later than they otherwise could.

So we’re going to see what we can do to help you avoid wasting money and/or retiring later than you’d like to.

As for the “best investments possible”, it’s somewhat subjective.

There are a number of investment strategies out there that could be argued for.

However, I personally prefer dividend growth investing as the ultimate long-term strategy for investors of all ages.

But it’s an especially powerful and robust strategy for retirement planning/income.

This strategy essentially involves buying and holding shares in high-quality businesses that pay growing dividends, which themselves are funded from the growing profit the businesses are generating.

See, a publicly traded company is owned by its shareholders.

When you buy shares in a publicly traded company, you now own a very small slice of the business.

And so any profit this business generates is technically yours – at least a small part of it is.

Well, there is a limit in terms of how efficiently a company can reinvest its profit, meaning that, at some point, it’s practically forced to return a chunk of its profit back to shareholders.

As that profit grows, so should the dividends.

I’d much rather a company show me how profitable they are than tell me how profitable they are.

When a high-quality company grows its profit for years on end, you’ll often see a dividend growing in tandem.

To see this in action, take a look at David Fish’s Dividend Champions, Contenders, and Challengers list.

This list is a compilation of more than 800 US-listed stocks that have paid increasing dividends for at least the last five consecutive years.

And you’ll notice a number of blue-chip stocks on the list – names like PepsiCo, Inc. (PEP), Microsoft Corporation (MSFT), and Johnson & Johnson (JNJ) pop right up.

These are world-class businesses that you can own a slice of.

Better yet, they pay you to own them!

That’s right: these companies effectively pay you to invest in them, via the dividends (a portion of their profit) they pay to their shareholders.

Not only that, but they routinely increase the amount of money they pay you, year in and year out.

Meanwhile, the value of the shares – the stock you buy – also tends to rise as the value of the underlying business increases. As these companies sell more products and/or services to people all over the world, they increase their profit and become more valuable businesses.

So you get the income and the capital gain.

That’s more wealth and more income.

And the income side of that equation is completely passive.

You don’t need to call anyone or do anything to receive your dividends. They just show up in your brokerage account when the payment date arrives.

This makes for a pretty carefree retirement.

Buy enough shares in enough high-quality businesses and you could set yourself up for significant passive and growing dividend income.

I’d know: I built a real-life dividend growth stock portfolio that’s now valued well into the six figures. Plus, it generates five-figure dividend income on my behalf, without me having to lift a finger.

Indeed, I built this portfolio specifically for retirement, except I decided to retire from my day job at the young age of 32.

Dividends spend the same at 32 as they do at 62, so it’s truly a robust strategy for investors of all ages.

But if you don’t believe me, maybe Warren Buffett might be able to convince you that this is a great investment strategy.

He built a fortune worth billions of dollars by buying up high-quality businesses just like those on Mr. Fish’s list.

In fact, the common stock portfolio he controls via Berkshire Hathaway Inc. (BRK.B) is filled with dividend growth stocks that send Berkshire huge dividends regularly.

Buffett is then able to reinvest these dividends into even more businesses, which then send even more dividends his way. In addition, many of these companies are growing their dividend income, meaning the dividend income Berkshire is collecting is growing both organically (via dividend increases) and via new stock purchases.

More dividends buy more shares. More share pay more dividends, which are also increasing all by themselves.

That’s the snowball effect of dividend growth investing.

I’m throwing a lot of information your way, so I’d recommend taking the time to read through fellow contributor Dave Van Knapp’s series of lessons on dividend growth investing.

When read completely, these articles will educate you on what this strategy is, how it works, and how to successfully implement it for your own goals over the long term.

And if/when you’re ready to put capital to work, I personally provide a compelling long-term dividend growth investment idea each Sunday, via my undervalued dividend growth stock of the week series.

The key to really getting that snowball rolling downhill is to get started as soon as possible.

Compounding is incredibly powerful, but it needs time to work effectively.

Fortunately, Frances, you have some fantastic and helpful tools at your disposal.

It’s now up to you to take those next steps.

I wish you luck and success.

Jason Fieber

[ad#IPM-article]

Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.