Raise Your Hand if you are Skeptical

Secrets of growing your income in retirement – Real life dividend growth top ten

No! Is it too good to be true? Anytime I hear that someone is willing to reveal the secret for amazing health, wealth, hair growth, weight loss, or success in any aspect of life, count me among the skeptical. To be cynical and unconvinced is the norm, because I have seen far too many promises that are “too good to be true” because they fall short and are less than amazing. But sometimes a product or solution does work with remarkable results.

For example, I have been coughing for years. Much of that cough was due to “allergies.” I was going through bags of cough drops, boxes and boxes of tissues, and multiple doses of Benadryl in a vain attempt to stop the cough. Then, at “The Healthy Place” earlier this year, I was introduced to two products. One of them is Enzymedica MucoStop (TM). Both supplements seem to work as advertised. The results are amazing. I have not had a cough drop yet today. I have not taken a Benadryl either. Cindie is taking a nap and my cough won’t disturb her. Who would have thought that The Healthy Place could sell me a couple of products that would stop my nonstop cough?

Enzymedica MucoStop (TM) is a helpful supplement.
Cough Drops, Benadryl and Tissues are less needed

So it is with investing. There are, at times, good solutions to investing allergies. They don’t have to be time consuming, and you can put your box of “investment statement” tissues away. You can reduce your investment expenses. You can save on taxes. Sometimes the best way to help you know that this series will be worth reading is to show you what success looks like. This is the first in what I plan to write in a series of at least ten posts.

Top Ten Investments Revisited

The dividend yield or an investment is not my primary focus. It can’t be because it doesn’t really address the goal I set. The primary goal is increasing income with minimal effort. That isn’t to say that yield is unimportant. Stocks that yield less than 1% are not as attractive as those that yield 2.5% or more. If you examine our top ten investments from a dividend perspective, you will see that nine of them have a history of dividend growth. Half of them have a history of increasing their dividends ten or more years. The average growth rate is about 8.2%. Of course, this is without weighting the holdings, but it is a simplified way to understand the impact of this type of investing.

Dividend Yield and Dividend Growth for Top Ten Investments

The other very important percentage is the dividend payout ratio. Having a dividend payout ratio greater than 70%, for most sectors, is a dangerous dividend approach. You will see three holdings that ignore that upper threshold. They are MAIN, ARCC, and O. MAIN and ARCC are BDC’s. O is a REIT. The payout ratio still matters, but I find payout ratios of up to 100% acceptable because of the underlying purpose of BDCs and REITs. I do, however, sacrifice dividend growth for these three to get more immediate income. Furthermore, MAIN and O both pay monthly dividends. The other eight pay quarterly.

If the 8% growth is reasonable and will continue, then the $57,000 in estimated annual income (EAI) can be expected to increase to $61,500 next year by 8%. If you think about 2022’s rate of inflation, this only helps us maintain our buying power in real dollars. However, bear in mind that our cost of living is more than covered by our Social Security income, and that income is also being adjusted for inflation. These dividend income dollars can be put to use in many different ways.

These images may help you see the dramatic impact of dividend growth investing over time. How many of you have received an 8% raise from your employer every year for the last twenty years? Please raise your hand.

The Argument Against Dividend Growth Investing

There is a belief that dividend growth sacrifices the growth in the portfolio. In other words, rather than seeing the prices of my shares increasing, I am only getting the income at the expense of flat capital growth. That is also a myth if the dividend investing focuses on quality.

There are at least two reasons for this. One is that dividend-paying investments are attractive to retirees. Therefore, as dividends increase, the yield increases. This causes more investors to buy the shares. Demand for the shares can exceed the supply, and the price per share goes up.

The second reason is that companies don’t pay out all of their profits in dividends. Some of the money can be used to buy back shares. With fewer shares on the market, the earnings per share can improve and a more limited supply of shares with increasing demand can increase the share price for patient investors. In addition, some profits can be used to grow the business or acquire new subsidiaries. This reinvestment in the business can grow the company’s income, profits, and dividends as well.

To illustrate the reality, the following graph shows the balance growth from 2003-2022 of our retirement accounts. Pay attention to the red line. We have made IRA and ROTH IRA withdrawals and deposits over the last several years. In reality, we have not had to put a lot of new money into the accounts in the last fifteen years. During the time period shown, the value of our holdings has increased dramatically. We did not sacrifice the value of the investments on the altar of dividends.

Retirement Account Balances 2003-2022 including withdrawals

ETF Dividend Growth

Although I am a big fan of individual dividend growth stocks, the average investor does not have the time or depth of knowledge to build a fancy portfolio with individual stocks. Therefore, investments like Schwab’s SCHD and Vanguard’s VYM make sense. In a future post I will examine this in more detail.

SCHD dividend growth history 2012-2022
VYM Dividend Growth History 2008-2022


A good dividend growth investment approach can be a powerful way to keep pace with inflation. I believe you can actually stay ahead of the real costs of living using a disciplined dividend growth investing model. That is one way to increase your income in retirement. The beauty of starting this now is that you won’t have to have an advisor change your investment mix when you retire to generate income for your Required Minimum Distributions (RMDs).

Full Disclosure

Our top ten investments vary over time. There are rarely huge changes. Most of the changes can be attributed to the volatility in the market. For example, our investment in Seagate Technology Holdings plc (STX) has dropped significantly in 2022. For example, STX is down 51.78% YTD. That is something the average investor would and should dread. However, I am not overly concerned. The dividend payout ratio is 44.52% and STX has an attractive dividend growth rate, dividend yield, and a good track record for paying dividends.

Always remember that your tolerance for volatility might be different from mine. Also remember that volatility is only risky if you sell when the market is declining. Don’t do that. If you want a simple approach, you should focus on low-cost mutual funds and ETFs that increase your diversification while giving you dividend growth. Buy and hold the good investments. Ignore the doom and gloom of the moment. You cannot time the market, so don’t try.

LINK: The Healthy Place