TROW - If I Had To Retire With 10 Dividend Aristocrats It Would Be These

2024-06-30 10:35:45 ET

Summary

• If you want a massive dividend snowball: Get the right combination of dividend yield and growth for maximum compounding effect.
• Dividend Aristocrats may not always be the best choice due to high valuations and low yields.
• I refine a list of Dividend Aristocrats from 60+ to 10 based on yield and growth rates if I had to pick just 10.

Written by Sam Kovacs

Introduction

In a recent article titled "Sell Alert: 3 Dividend Aristocrats that will kill your passive income snowball" I made the case that for dividend investors that wanted to see their income compound at phenomenal rates, blindly investing in popular Dividend Aristocrats was not the way to go.

You see, our methodology is quite simple: based on how long you've got to retire (or if you're already retired) find the stocks which will give you the most bang for your buck when it comes to dividends.

This can be achieved by balancing out dividend yield and dividend growth in the correct dosage.

If you do this right, then your dividends will snowball. I explained this in detail in an article humbly titled " Sam's Dividend Income Snowball Retirement Masterclass ":

Imagine you are at the top of a hill, holding a snowball. This snowball represents the dividends you'll receive in the first year you start investing. Of course, the size of this snowball is determined by two factors: how much cash you can invest into dividend stocks, and the dividend yield of the stocks which you chose to buy.

More cash creates a bigger snowball, as does a higher yield. Now, as you let go, the snowball begins to roll down the hill.

As the snowball rolls down the hill, it starts to gather more snow, becoming larger and larger. This gathering of snow symbolizes the growing dividend checks you receive. When you reinvest dividends, this packs more snow onto the snowball.

If you're not yet retired, and are making monthly contributions towards your portfolio, this too packs on more snow. This reinvestment increases your principal, which in turn generates more dividends in the next cycle, causing the snowball to grow faster and faster.

Now, consider the slope of the hill. This slope represents the growth rate of your dividends. Stocks with higher dividend growth rates cause the snowball to gain momentum more quickly.

For further details see: