When companies introduce new products (or new funds) they put out the best message possible. Recently Bristol Gate Capital Partners listed why dividend growth investing makes sense in today’s investing world.

1. Demographics – if you look at models at what the average person should own, as they reach into their 60’s the models stress more dividend stocks (try not to lose your money). The baby boom at the end of World War II is retiring and they will shift to more conservative models.
2. Historically low interest rates – the economy has changed and no central banker quite knows what to do, at this time 60% of the S&P 500 stocks offer dividend yields higher than 5 year US Treasuries bonds ( the alternative and designed not to lose money)
3. Interest rate correlations – dividend growth is positively correlated to interest rates or if interest rates ever rise, the growth of the dividend offsets the rise in interest rates. If interest rates rise about 5%, you can always move more money into bonds.
4. Payout ratios – dividend growth stocks have earnings growth of more than 10% which help make dividend payments sustainable. If you only look at the highest yield dividend stocks, some of those companies do not increase their dividend payouts.
5. Cash reserves – payouts as a proportion of profit are lower and cash reserves are higher than ever. (the dividend growth companies can continue to pay dividends)
6. The dividend growth story – if a company increases the dividend by 15% a year, over 5 years your dividend has doubled.
7. the lower dividend but increasing dividend growth leads to more money a)  100,000 2% dividend, annual dividend growth rate of 10%  2,000 this year and 13,455 in 20 years.b)100,000 5% dividend, annual growth rate of 2%  5,000 this year and 7,430 in 20 years.   Compounding effect advantage.
8. Valuations – at the moment high dividend growth stocks are trading at a discount to stocks with high yields, they tend to be less expensive to buy right now.

Linking to dividend paying stocks, in this example a dividend stock is not just a dividend stock. The company was highlighting higher dividend growth stocks and opposed to low dividend growth. Either way, the dividend adds to the total return and the concern is always can they continue to pay the dividend? Is the company profitable? If yes then you can count on receiving your money and having options to do more.

There are more questions than answers, till the next time – to raising questions.