3 Dividend Secrets Every Smart Investor Must Know
Discover the simple strategy top investors use to turn dividends into long-term wealth.
TL;DR
✨ The Golden Triangle of Dividend Investing:
📈 Increasing Revenue: Look for companies that have consistently grown their revenue over the last 10 years.
💰 Increasing Earnings: Steady profit growth is essential for sustaining dividends and boosting stock value.
🏆 Growing Dividends Paid: Consistent dividend hikes signal financial health and commitment to shareholders.
🔑 Why it works: Companies like Walmart and Royal Bank exemplify this approach, showing that reliable growth in these three areas leads to rising share prices and dependable income for investors. Follow these steps to build a winning dividend portfolio!
As dividend investors, we want steady, reliable, and growing dividends over time. Additionally, we aim for an increasing stock price, which can enhance our overall returns. To achieve this, we apply a golden triangle approach to dividend investing:
The Golden Triangle of Dividend Investing
Increasing Revenue
Companies with consistently rising revenue over the last 10 years demonstrate strong business performance and demand for their products or services. Growing revenue is the foundation of sustainable earnings growth and ultimately supports dividend payments.
Increasing Earnings
Earnings growth is critical. A company must not only generate revenue but also manage costs effectively to produce increasing profits. Steady earnings growth over the past decade indicates the company’s ability to navigate economic challenges and sustain its business model.
Increases in Dividends Paid
A reliable history of dividend increases shows management’s commitment to returning capital to investors. It’s also a signal of financial health, as consistent dividend growth suggests the company generates sufficient cash flow to reward shareholders.
Each of these metrics must show steady increases over the last 10 years. A decade is long enough to demonstrate consistency and staying power but short enough to identify companies with strong growth potential ahead of them.
Why This Works
While we can’t predict where the market will be in a year, we do know that companies growing their revenue, earnings, and cash flow tend to see their share prices appreciate over time. This approach helps us focus on the long-term performance of businesses rather than short-term market fluctuations.
Consider companies like Walmart or Royal Bank. These are vastly different businesses operating in distinct industries, but they share one key trait: a consistent track record of increasing revenue and earnings. As a result, their share prices have followed an upward trajectory over time.
Growing revenue and earnings provide the foundation for long-term share price appreciation. Meanwhile, consistent dividend increases demonstrate a company’s ability and willingness to return capital to shareholders. This dual focus—on growth and dividends—makes for a winning strategy.
How to Build a Reliable Dividend Portfolio
By following these three rules, you can create a portfolio of dividend-paying companies that delivers reliable and growing income:
Look for Consistency: Focus on companies with a proven history of steady revenue, earnings, and dividend growth over the last 10 years.
Prioritize Quality Over Yield: A high dividend yield can be enticing, but it’s often unsustainable. Instead, prioritize companies with solid fundamentals and consistent growth.
Monitor and Rebalance: Regularly review your portfolio to ensure the companies continue to meet the golden triangle criteria. If one falters, consider reallocating to better-performing stocks.
The Golden Triangle in Action
Both Walmart and Royal Bank are excellent examples of the golden triangle approach:
Walmart: Over the years, Walmart has consistently grown its revenue and earnings, reflecting its dominance in retail. Its dividends have steadily increased, rewarding long-term investors.
Royal Bank: As one of Canada’s largest banks, Royal Bank has a strong track record of revenue and earnings growth. It’s also known for its reliable and growing dividend payments, making it a favorite among dividend investors.
These companies highlight how applying the golden triangle can help identify reliable investments across various sectors.
Stay Tuned for Our Golden Triangle List
Following the golden triangle approach, we’re compiling a list of dividend-paying companies that meet these three rules. This curated list will feature businesses with a strong track record of revenue, earnings, and dividend growth, helping you build a dependable and growing dividend portfolio.
Mark your calendars—this game-changing list will be ready by Friday, so don’t miss out!
Disclaimer: This analysis is for informational purposes only and does not constitute financial advice. Investors should conduct their own due diligence and consult with a financial advisor before making investment decisions.