The idea behind the dividend growth model of investing is to buy solid, reasonably priced companies with a track record of raising their dividend year after year.
This model is thought to be prudent due to the fact that the incremental increases in the dividend rate will ultimately increase one’s dividend yield as a percentage of the purchase price. It is also thought that the increases in dividend rate will support higher stock prices over the long term.
This strategy is suitable for conservative investors and income investors who want to protect against inflation. You see, the increases in dividend rate can be viewed as a hedge against inflation because of the additional income that the dividend increases provide.
The majority of the companies that fall into this category are relatively stable and very large in nature. Many large financial, insurance, telecom, and utility companies have a reputation for increasing their dividends on at least a yearly basis.
For a great starting point on these companies check out Mergent’s Dividend Achievers.
Stay tuned for more in Dividend and Income investing before we venture on to the exciting and volatile world of Technical Analysis!
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