Why You Should Invest in Dividend Growth Stocks in 2022

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when we think stock tradingThe phrase “buy low, sell high” is often repeated as a success strategy. But there’s another way investors can make money in the markets: through dividends.

In short, dividends provide a way for companies to pay out a portion of their profits to investors. Shareholders benefit because each share of stock entitles them to a set dividend payment. Companies pay dividends in regularly scheduled payments, either in cash or in the form of additional company stock, usually monthly, quarterly or annually. For this reason, you can almost think of dividend-paying stocks as a way to earn passive income.

“Increasing dividends from high-quality companies can have a significant positive impact on a portfolio,” Daniel MillanManaging Partner of Cornerstone Financial Servicestells choose. “Albert Einstein summed it up well when he called compound interest ‘The eighth wonder of the world.’ “Reinvested dividends are a huge growth driver, more so than market returns alone.”

More than just providing a steady income stream, dividend-paying stocks have recently become part of the conversation. Protect your money from inflationWhich makes them ideal for today’s market conditions.

Large companies that have a long history of consistently paying dividends each year have some advantage inflationary environment: They could face higher prices – and actually benefit.

“The good thing for stock investors is that in the medium and long term, as prices of products and services rise due to inflation, (a) company’s revenues, earnings and dividends will increase,” he says. clark kendallCertified Financial Planner, President and CEO Kendall Capital.

Kendall calls out dividend-paying stocks like IBM, Johnson & Johnson, Procter & Gamble and Kellogg as examples of great ways to protect investors’ long-term purchasing power when the prices of goods and services rise. “As interest rates riseFocus on the valuation of the companies you own…and own good companies,” Kendall says.

More specifically, Milan recommends looking for a portfolio of stocks with strong cash flow that yield an average of 3% to 4% or more and grow their dividends consistently by 5% to 10% each year. “You should target these types of companies,” says Milan.

Kendall and Milan are not alone in their thinking. mike schenckDeputy Chief Advocacy Officer and Chief Economist for Policy Analysis Credit Union National AssociationAgree that many companies with high-dividend stocks have long adopted business models that perform well every time prices rise, ultimately boosting their profits.

“Let’s face it, consumers have to heat (or cool) their homes, get to work, and eat — even when prices are rising rapidly,” Schenk says. “Companies in the energy sector, companies in the natural resources sector and companies in the food and consumer staples sector generally benefit from strong pricing power and cost management, allowing them to raise prices, maintain demand and increase profits.”

Schenk’s comments are also supported by past performance – he notes that historically, dividend payments have accounted for about 40% of total stock market returns. Especially in times of inflation, investors may benefit from holding portfolios that include stocks that grow their dividends the most.

In general, his best advice is to take a long-term view, seek Build a diversified portfolio Learn about the holdings and resist the temptation to time the market and buy in. You can buy stocks and build a portfolio best stock trading platforms which does not include commission fees td ameritrade, collaborative investment, e*business, vanguard, charles schwab And Loyalty. Or if you want a simpler interface and trading platform, consider investment app Like Robin Hood*.

When it comes to profiting from dividend-paying stocks, remember that slow and steady wins the race. “A successful dividend growth investing approach requires discipline and patience,” says Milan. “These qualities are not exciting, nor are they in sufficient supply for most investors. But if we look at the history of dividend growth stocks, they have outperformed high-yield stocks, non-dividend payers, and dividend payers with low volatility.”

“Work with yourself financial advisor “Be more conscious about where to put your investment money and look for opportunities you might otherwise miss,” says Kendall.

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