Home Strategies Research Articles FAQ Team Login GET STARTED What Is Dividend Growth Investing & How Does It Work? Dividend growth investing is a popular strategy with many investors. It entails buying shares in companies with a record of paying regular and increasing dividends. Investing·Oct 20·4min Table of contents What is a dividend? How does dividend growth investing work? Calculating dividend growth rate Dividend growth investing strategies Dividend yield vs. dividend growth How to invest in dividend growth stocks Risks of dividend growth investing The bottom line Share this    Investors looking to diversify their portfolio, hedge against market downturns and inflation, or potentially generate passive income may turn to dividend growth investments. The companies offering these types of stocks are often recognized as being stable, low volatility, and even having a positive future outlook. As with any investment, however, dividend growth stocks still come with risks and considerations to keep in mind. What is a dividend? A dividend is a portion of a company’s earnings that are paid out to shareholders. It is generally contingent on the company recognizing a surplus or profit, and is often paid on a scheduled basis, such as quarterly or annually. These dividends may be paid in cash via a dividend check or as a credit with a brokerage of choice, or as additional shares of stock. If paid in cash, investors can reinvest it to purchase more shares or use that money elsewhere. How does dividend growth investing work? Dividend growth investing is a popular strategy with many investors. It entails buying shares in companies with a record of paying regular and increasing dividends. An added component is using the payouts to reinvest in the company’s shares—or shares of other companies with similar dividend track records. The goal is compound investment portfolio growth. Although dividend growth investments are generally recognized as low volatility, no investment (or dividend payment) is guaranteed. Receive daily business and financial news Calculating dividend growth rate A stock’s dividend growth rate is a percentage-based equation that tells investors how much that stock’s dividends have grown over a period of time. As a company grows, it may increase the dividends paid to investors, which may indicate stability. The dividend growth rate is calculated by dividing a stock’s annual dividend in any given year by the previous year’s annual dividend, then subtracting 1. For instance, let’s say a company’s current annual dividend is $2.20 per share, but last year the company offered $2.05 per share. The dividend growth rate would be 7.3%. Dividend growth rate = [Current annual dividend / previous year’s annual dividend] - 1 To find the dividend growth rate over a range of years, simply average the individual dividend growth rate change for each year in question. Dividend growth investing strategies A dividend growth investment strategy can focus on the following: Companies with a history of consistent dividend yield growth. Diversification in companies in a variety of industries, limiting the effect of a decline in one sector. Buying and holding, because reinvesting dividends is meant to compound returns over time. Companies whose dividend yield growth is greater than, or at least equal to, the rate of inflation. Companies that “earn” their dividend and make payouts from current profits, not accumulated capital or debt. Each investor will have their ideal approach based on individual goals, financial situation, and risk tolerance. Become a Titan investor today. Create an account with us in two minutes. JOIN NOW Table of contents What is a dividend? How does dividend growth investing work? Calculating dividend growth rate Dividend growth investing strategies Dividend yield vs. dividend growth How to invest in dividend growth stocks Risks of dividend growth investing The bottom line Share this    Dividend yield vs. dividend growth A stock’s dividend yield, on the other hand, can tell investors how much the company offers in dividends compared to the stock’s share price. Both yield and growth rate are important to investors for different reasons. Yield indicates how much a stock is currently paying out in dividends compared to its share price, while growth rate helps investors analyze a company’s dividend trends over time. To calculate dividend yield, simply divide the annual dividend paid by the price of the stock. Annual dividend yield = [dividends per share / share price] For example, take a stock with a share price of $54.50, which offered a dividend of $2.20 per share last year. In this case, the annual dividend yield would be 4.04%. How to invest in dividend growth stocks Finding dividend growth stocks may involve analyzing stable companies with a history of growth, as well as calculating (or finding) their dividend growth rate. The Dividend Aristocrats Index, which tracks companies that have offered increasing dividends for the last 25 consecutive years, is a helpful resource for reviewing dividend-paying stocks with a potential for growth. According to the index, the companies therein have proven they can successfully navigate real estate bubbles, economic downturns, recessions, financial crises, volatility, and even pandemics without breaking stride. Receive daily business and financial news Risks of dividend growth investing Of course, no investment strategy is without risk, and this includes dividend growth investing. Nothing is guaranteed. There is nothing to say that dividends won’t be cut in the future or that stock prices won’t fall. If investors have chosen to reinvest dividends and purchase additional shares, rather than putting that passive income to work elsewhere, the impacts of an unexpected and drastic drop in share price could be amplified.‍ Dividend growth investments are long-term investments. For investors looking to recognize significant growth in a short period of time, dividend growth stocks may not be the right fit. Dividend growth investments are generally popular among long-term investors. The bottom line Dividend growth investing is inherently a long-term investment strategy. It takes time to work, because the goal is consistency, not quick profits. The added benefit of reinvesting dividends also takes time to yield results. Of course, dividend growth investing isn’t risk-free: Companies with long records of consistently rising dividends can run into trouble and cut their payouts. If you’re looking for a long-term investment strategy, we’ve got you covered. Titan’s award-winning, expert-managed portfolios offer investors of all income levels the potential to grow their wealth over the long-term. Why wait? Sign-up takes less than five minutes. Disclosures Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein. 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Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.‍ Titan Partner Become the smartest investor you've ever been. Titan's editorial partners have cut their teeth at The New York Times, Wall Street Journal, Time, Inc., and Bloomberg. Keep reading How to Invest in Index Funds: A Beginner’s Guide An index fund is a type of fund that tries to mirror the performance of a benchmark market index, such as the S&P 500 stock market index. 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Personal Finance·Nov 16·12min How to Retire Early: 5 Steps to Take Retiring early does require some solid financial planning, such as determining how to live in retirement, creating a retirement budget, and altering spending. Those who want to retire early need to start planning as early as possible. Retirement·Nov 16·12min Latest Titan Research Titan Offshore Trade Update: We’ve bought TSM, added to SE, sold out of BILI, and trimmed ASML [ASML, BILI, TSM, SE] Trade Update: Adjusting weights in Titan Flagship [ADSK, APPL, AMZN, TMO] Much ado about inflation Titan Crypto Trade Update: Six New Altcoins [AVAX, LUNA, SOL, MATIC, SUSHI, and REN] Exploring an active quarter Farfetch's next big trick [FTCH] Titan Opportunities Trade Update: We’ve bought AVTR, trimmed RDFN and FND [AVTR, FND, RDFN] Open houses closing down We're building the best investment firm, ever. 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