Heads, I win. Tails, I don’t lose. Is this possible? Yes. It is. With the investment strategy that is dividend growth investing. This strategy almost guarantees you success over the long run.
After all, only some of the best companies in the whole world can manage to pay reliable, rising dividends for decades on end.
By investing in these world-class enterprises, you benefit from the ever-growing profits they produce by selling the products and/or services the world demands.
Indeed, you benefit directly – through those growing cash dividends being sent right to your brokerage account. All well and good, but what about stock market volatility? What about when stocks crash? What about when stocks go way up?
I want to tell you how dividend growth investing can position you so that you can benefit from both stocks going up and down.
Ready? Let’s dig in.
So how do we end up in a win-win scenario, no matter what the market is doing? Let’s first tackle stock market crashes. Oh, no. The stock market is crashing? What do we do?
Celebrate, that’s what you do. If you’re still accumulating stocks, you should be grateful for lower prices on stocks. Price and yield are inversely correlated, all else equal. That means lower prices result in higher yields. That’s more passive income on the same invested dollar. For those aiming to become financially independent and live off of passive dividend income, cheaper stocks only serve to get you to your goal that much faster.
You want to learn to be greedy when others are fearful.
If you’re routinely buying stocks month in and month out, seeing lower prices on stocks would be like seeing lower prices on anything else you’re routinely buying every month – food, gas, etc. It’s a gift. I don’t know of anyone who gets mad when food or gas is cheaper. Same goes for stocks.
Investing a set amount of money per month – say, $1,000 – will go much further if stocks are suddenly much cheaper.
That means you’re buying more shares for the same amount of money. That’s greater long-term total return potential from the extra shares compounding. Again, all else equal, lower prices will result in higher yields, more passive income, extra shares compounding, and greater long-term total return potential.
When the market crashed last spring, I was buying up cheap high-quality dividend growth stocks left and right.
Many of these stocks are up 100% or more now. Why would you not want to pay 50% less for a stock? It’s nonsensical to wish to pay more for the same exact thing. And all of those stocks were offering much higher yields back then compared to now, meaning the passive income got a big boost. Meanwhile, the consistent nature of high-quality dividend growth stocks meant that my dividend income was flowing and growing, despite the market crash. Stock crashes are not the same as dividend crashes. So if you can reinvest those consistent dividends into cheaper stocks with higher yields, you’re supercharging the compounding process.
If you flip heads and get a market crash, you win.
But what if you flip tails and get high prices on stocks? Well, in this case, you don’t lose.
You haven’t lost because your net worth is higher and you’re riding high.
Despite everything I just said about lower prices being better, investors are human beings. Being a human being comes with all types of biases and emotional shortcomings. And that means investors simply feel better when their accounts show more wealth from higher stock prices. They like seeing the bigger numbers. It’s just reality.
Plus, while the market and your net worth is riding high, your passive income is likely riding high.
Those growing dividends from high-quality dividend growth stocks are flowing and growing. People are optimistic. Products and/or services are flying off the shelf. The economy is humming along. Dividends seem endless. Life is good. No, life is great.
Meanwhile, it’s always important to remember that it’s a market of stocks, not a stock market.
Even in an expensive stock market, there’s always a deal somewhere. There’s always an individual stock out there that’s underappreciated and undervalued relative to the market. That’s just how it is. Because of those aforementioned emotions, investors tend to move in herds. And certain stocks get all of the love and momentum sometimes, leading to a lot of discounts in areas of the market that aren’t being trampled by the herd.
Be fearful when others are greedy.
While others are running with the herd, you should aim to find those opportunities in the market that aren’t being caught up in the greed. This means that even in an expensive market, you can benefit from the rising tide lifting all boats and still get those good deals. It’s okay to feel good when your net worth is through the roof. I get it.
But just remember that you don’t go down to the net worth store to buy things with your net worth.
Nobody cares about your brokerage account value. It’s just a number on a screen. The gas station doesn’t exchange stock prices for gas. Your grocery store doesn’t accept your higher net worth as legal tender. Cash flow is what actually gets the bills paid. Passive income is the name of the game. It’s ultimately those cash dividends that unlock your financial freedom. Staying focused on the passive dividend income means you’ll be focused on finding the deals that provide the best dividend income bang for your buck.
Heads, you win. Tails, you don’t lose. That’s the beauty of being a dividend growth investor.
Celebrate when the market crashes. Because you know that’s where the serious long-term wealth and passive income is forged. But it’s also okay to feel good when everything is riding high. Just don’t get caught up in the herd. Whatever you do, don’t be the person who cries when the market is crashing and also complains when stocks look expensive. Those people never get anywhere. Keep your eye on the long term and use both the ups and the downs to your advantage.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.