Dividends and Inflation

One of the great things about dividend growth stocks is that the dividends increase faster than the rate of inflation. That means that you can grow your income relatively faster than your living costs can increase. This is great when building up an income for retirement. If you are retired like I am and living off your dividend income you can have more disposable income to spend the longer you hold dividend growth stocks.

The result of all of this is that the longer you are retired the more spending money you have. Also, you will get relatively better off as time goes by. This is not a bad idea. The older you are the more you might need in disposable income to cover unexpected expenses.

There are lots of studies that say high dividend yield stocks do the best over the long term. That is dividend yields in the 4 to 5% range. However, I have found a correlation between dividend yield and dividend growth. I have found that the lower the yield the higher the growth and the higher the yield the lower the growth. Although this is not always true, you have to check out each stock as far as yield and growth goes.

I must admit that I find high dividend growth quite attractive in a stock. What I have done personally is to get a variety of dividend yield/dividend growth stocks. So I have stocks with low, medium and high dividend yields and low, medium and high growth rates.

How do you get on this track? I suggest you start out small. Buy one stock and get comfortable with it. Usually you have to buy 100 shares. Until you have more than $50,000 you really do not need more than 3 stock, but have them in different sectors. Good sectors to start with are financials, utility and consumer stocks.

And most importantly, do not focus on the day to day, even year to year movement of the stock you buy. Focus instead on the dividends. Are they being paid? Can the company afford their dividend? Are the dividends increasing over time? Companies may not increase their dividends each year, but they must increase over time.

On my other blog I wrote yesterday about Shaw Communications Inc. (TSX-SJR.B, NYSE-SJR)... learn more. Next, I will write about AGF Management Ltd. (TSX-AGF.B, OTC-AGFMF)... learn more on Friday, February 2, 2018 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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