A lot of newer investors these days laugh off dividend growth investing.
They see a 2% yield and yawn. Even 4% doesn’t impress them. Heck, some of these folks wouldn’t roll out of bed for a 6% yield if you can believe it.
Nope — in their minds, 10% a year is the bare minimum. Anything less is a waste of time. Crazy, right? But that’s what happens when you’ve only lived through a bull market and a couple of crypto booms (and crashes, and booms, and crashes…).
Veteran income investors know better. We’ve been around long enough to appreciate the value of steady, growing dividends. We don’t need to swing for the fences to build wealth. We don’t have to play hot potato with meme stocks or the latest “get rich quick” fad.
We’re the tortoise in the old story — slow and steady, sure. But when the dust settles? We’re the ones crossing the finish line with a portfolio that keeps giving us raises for life.
So let’s talk about why dividend growth investing is the strategy that keeps on paying — literally — without having to sell a single share of stock.
Dividends vs. Capital Gains
Wall Street will say, “Don’t worry about dividends — focus on capital gains.”
Here’s the problem: those “gains” are just numbers on a screen until you hit the sell button.
And when you sell? You’re chopping down branches of the tree to get the fruit. One less share in your portfolio, one less share paying you tomorrow.
Dividends flip the script. They drop real cash into your account every quarter without you lifting a finger — and without shrinking your position.
That’s money you can reinvest, spend on groceries, or just let pile up as proof your portfolio’s working for you. It’s the difference between hoping for a payday someday… and actually collecting one today.
And the longer you own the right dividend payers, the better it gets. For example, if you bought Coca-Cola (KO) a decade ago when the annual dividend was about a buck, your starting yield was around 3.3%.
Fast forward: KO pays more than double that now, so your yield on what you originally paid has quietly ballooned to nearly 7%. That’s the beauty of dividend growth — your paycheck gets bigger, and you never have to sell a single share.
Dividend growth stocks also work as a built-in inflation fighter. When grocery bills creep higher or your Netflix subscription sneaks in another $2, companies like Microsoft (MSFT) and Chevron (CVX) are raising their payouts. That extra cash shows up right when you need it, without you lifting a finger.
And here’s another kicker to keep in mind: the tax man treats dividends better than capital gains when you need cash.
| Selling Shares (Capital Gains) | Collecting Dividends | |
|---|---|---|
| What happens | You must sell stock to generate cash | Cash arrives automatically, you keep your shares |
| Tax treatment | Capital gains taxed 15–20% federally (plus state) | Most dividends are “qualified,” taxed at the same favorable rates |
| Impact on portfolio | Shrinks your nest egg every time you sell | Income stream intact, shares keep compounding |
| Tax-advantaged accounts | Selling still triggers taxes later | Dividends compound tax-deferred (IRA/401k) or tax-free (Roth) |
The Takeaway
Selling stock to generate cash is like chopping down branches of your tree to get the fruit — it shrinks the portfolio and hands Uncle Sam a bigger check. Dividends, on the other hand, show up on schedule, get friendlier tax treatment, and leave your tree intact to keep growing.
And when markets crash? This is where dividend growth investors have the real psychological edge. In 2020, the S&P 500 dropped more than 30% in a few weeks. Most investors panicked. Dividend growth investors? We were still cashing checks — and many companies actually raised their payouts in the middle of that chaos. Bigger checks while the world freaked out. That’s staying power you can’t put a price on.
So forget the obsession with capital gains. They’re nice, but they only exist when you sell. Dividends are different. They pay you to hold, they grow over time, and they keep compounding long after the latest “hot tip” has fizzled out. Hot tips fade. Dividend paychecks don’t.
Good investing!
Greg Patrick
P.S. Want to see this strategy in action? Every month, we put $1,000 of real money into our Income Builder Portfolio — a hand-picked collection of dividend growth stocks designed to give us bigger and bigger “pay raises” over time. No theory. No paper trading. Just cold, hard cash going into high-quality companies we believe will pay us more next year than they do today. Click here to check out the IBP’s latest moves.
