Published February 21st, 2018 by Millionaire Mob
This is a guest contribution by Millionaire Mob. Millionaire Mob is a blog focused on everything online income including: Travel Photography, Travel Rewards, Passive Income, Dividend Growth Investing and Personal Finance advice. I hope to provide the best advice to help you learn and grow along the way. Join the mob and escalate your life. Achieve financial freedom.
Ah, millennials, the oft scrutinized bunch that either gets no credit for progress or gets chastised for lack of progress. These days it seems like millennial truly cannot win. However, for investing, I think millennials truly will have an edge over prior generations. There are more tools available than ever before and free resources to generate new investment ideas. Although, one could argue this makes for more efficient markets. I believe though that breakthrough technologies such as robo-advisors or commission-free brokerages have enabled millennials to be able to manage multiple tasks. But how does dividend growth investing fit in the picture?
Dividend Growth Investing for Millennials
Dividend growth investing is often viewed as this sleepy, belt and suspenders investment strategy that offers little upside. I disagree. This is just simply not true.
I believe millennials need to be the forward thinkers in the dividend growth investing realm. Millennials need to develop new strategies and new ways to think about dividend investing. Before getting to that level, millennials need to carefully understand how to get involved in dividend growth investing before getting started.
Steps to Becoming a Dividend Growth Investor
There are a number of different ways to get involved in dividend growth investing, but here is my action plan to get involved efficient and effectively:
Step 1: Start with a plan: There is nothing worse than going into something without a plan. You need to clearly write out your goals and strategy. Write out the exact amount of income you want to achieve in your portfolio. In addition, formulate a strategy that fits you best for your risk profile. Are you going to focus on dividends more so than growth or growth over dividends?
Step 2: Develop a formula that works for you: No one knows you better than yourself. Find criteria to screen dividend stocks that you understand. We’ve developed a set of criteria that will help you find undervalued dividend growth stocks. This is what I call the Dividend Growth at a Reasonable Price (dGARP) strategy. A new strategy where you only pay a fair price for dividend growth. Don’t reach for yield if you don’t have to.
Step 3: Use the tools you know best: If there is any generation that knows online resources, it’s millennials! Use social media tools (Twitter, Facebook, Instagram, etc.) to interact with the best and brightest in the industry. There are plenty of Facebook groups, Slack chats and investing social media sites to choose from. Get involved right away and start asking questions.
Step 4: Make an investment decision on your own: I’m a big advocate of investing by experience. You are not going to have all winners in your portfolio. If you can get 7 quality stocks for every 10 you will be in good shape. Just go for it! If an investment doesn’t work out, divest it and move on. Use numbers to find your answer. We like using the short-form dividend discount model to build a dividend portfolio as a checker to stocks that fit our undervalued stock criteria.
Step 5: Monitor your investments: After making your investment decision, sit on a few conference calls with the company. You get a chance to learn some great macroeconomic trends from executives for FREE. Also, analysts covering the stock will ask some great questions. It’s like listening to a podcast about business with some of the best and brightest in the world.
Crunched for Time? Easier Way to Become a Dividend Growth Investor
We get it. As a millennial you are likely crunched for time focusing on building your career and having a social life. As an alternative, you can invest passively through dividend growth index funds. There are plenty of dividend growth exchange traded funds (ETFs) to choose from that will give you a basket of diversified dividend growth stocks. One of my favorites would have to be the ProShares S&P 500 Dividend Aristocrat ETF (Ticker: NOBL), which tracks the Dividend Aristocrats. By investing in dividend aristocrat stocks, you know you are getting the best of breed dividend growth stocks. With only an expense ratio of 0.35% and a dividend yield of 2.02% this ETF is perfect for a young millennial. Pair your domestic dividend growth ETF with an international dividend growth ETF and you will be in good hands.
With ETFs, you can literally allocate a certain percentage of your income each month to these funds. Buy at any price and continue reinvesting. Additionally, sleep well at night knowing that one stock won’t blow up your entire portfolio or that you will be getting consistent yield over the long haul.
On the flip side, you won’t have the benefit of picking your own dividend growth stocks and participating in the upside potential of a single stock. With picking your own dividend growth stocks, you additionally can earn more yield than an ETF and you don’t pay nearly as many fees. It is more time consuming, however, so pick your poison!
Concluding Remarks for Millennials to Becoming Dividend Growth Investors
Dividend growth investing is not just a strategy for retirees. This strategy is best suited for young investors seeking out both income and growth through long-term capital appreciation. Build a dividend portfolio including both high yielding core income to boost your income in the interim. With tax reform behind us, I believe a number of companies will have ample room to increase their dividend payments. Many companies will be paying significantly less in taxes, which will unlock free cash flow to be used for dividends and buybacks.
I encourage millennials to enroll in a Dividend Reinvestment Plan (DRIP) with your stocks. This plan will automatically reinvest any dividend income from your stock. Compound interest is extremely powerful. Particularly the more time you have, the better. As a young millennial (age 25 – 35), you have at least 35 years of investing before you knock on the retirement doorstep (unless you want to retire early, like me). Get started now!
