FAST - Rethinking Risk: Why It's Time To Shift Focus From Dividend Safety To Dividend Growth

2024-03-12 07:00:00 ET

Summary

• Dividend growth investors focus on consistently growing dividends rather than high yields, as it ensures income continues to grow over time.
• Dividend safety is often considered of utmost importance for an income investor; however, future dividend growth can pose a greater risk to meeting future goals.
• The dividend growth coverage ratio, which compares earnings growth to dividend growth, can help determine a company's ability to sustain dividend growth in the long run.

Dividend growth investors are interested in seeing a company's dividend grow over time. Rather than searching for high yields, they focus on consistently growing dividends. A growing dividend will ensure the income continues growing even when the investor begins to withdraw the distributions. Of course, since a company pays dividends out of earnings, rising dividends also means rising profits, which in turn creates share price appreciation as a byproduct.

Most dividend growth investors are familiar with the rule of 72. The rule is as follows: 72 divided by a growth rate equals the time it takes to double something....

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