[The Royal Road to Asset Building] You'll Lose Out If You Don't Know! What Is the Hidden Power of "Dividend Growth Stocks"?

If you want to increase your future income sources, choose dividend growth stocks over high-dividend stocks.

Hello! This is Section Chief Ush.

Stock investment is a great way to build a future income source, but you might not know which stocks to choose.

For those of you with that concern, I want you to know about "dividend growth stocks".

In this article, I will thoroughly explain the hidden power and appeal of dividend growth stocks using my own experiences and a unique simulation tool.

*This article does not recommend any specific investments. Please invest at your own risk.

What is a "dividend increase" in the first place?

A dividend increase refers to a company increasing the dividends paid to shareholders compared to the previous period.

Companies return a portion of their profits to shareholders, and the amount of those dividends is reviewed every year.
If business performance is strong and profits increase, they may increase dividends as a return to shareholders.

What is the difference from "high-dividend stocks"?

You may often hear the term "high-dividend stocks."
High-dividend stocks are stocks with a high dividend yield relative to the current stock price.

On the other hand, dividend growth stocks refer to stocks that have the potential to continue increasing dividends in the future, even if the current dividend yield is not that high.

In other words, dividend growth stocks can be called "growing dividend stocks".

This is amazing! 5 charms of dividend growth stocks

Why are dividend growth stocks attracting so much attention?
Let's look at the specific benefits.

1. [Magic Power] Assets grow like a snowball with the compound interest effect!
The greatest appeal of dividend growth stocks is, above all, the "compound interest effect".

By reinvesting the dividends received into the same stock, the principal increases, and the next dividend received also increases.

By repeating this, your assets will grow at an accelerating rate, just like a snowball getting bigger.

The effect is especially huge when combined with long-term investment.

I simulated with a principal of 30 million yen, an annual additional investment of 100,000 yen, a dividend yield at the time of purchase of 3%, a dividend growth rate of 3%, and a 20% tax on dividends.

You can see that if you make additional investments while maintaining the dividend growth rate, the future dividends received will swell.

As a personal experience, in my case, there were stocks with a dividend yield of around 4-5% at the time of acquisition, but after 5 years, some stocks had a dividend yield exceeding 10% based on the acquisition price.

The actual transition of dividends received will vary depending on corporate performance and social conditions, but you can understand the amazing power of "dividend growth" from these simulation results.

2. [Future Potential ◎] Stock price appreciation can also be expected!
Announcing a dividend increase is the same as the company sending a strong message that "we will continue to grow" and "we are confident in our business performance."
The market reacts favorably to this, and as a result, it tends to lead to an increase in stock price.
It is a nice point that you can expect not only dividends but also capital gains from the rise in stock price.

3. [Resistant to Inflation] Don't Let Rising Prices Get You Down!
In recent years, rising prices (inflation) have been affecting our daily lives.
If bank deposit interest rates remain low, the real value of your money will effectively decrease.
However, with dividend growth stocks, if a company can raise the prices of its products or services in line with inflation and secure profits, there is a possibility that dividends will also increase as well.
This becomes a very reassuring ally in an era of inflation.

4. [Mental Stabilizer] Peace of Mind Through Regular Income!
When you hold dividend growth stocks, dividends are paid out regularly (often once or twice a year).
The experience of "money coming in without doing anything" also leads to mental stability.
It will ease vague anxieties about the future and bring peace of mind.

5. [Nurture Carefully] Perfect for Long-Term Holding!
If you want to grow your assets with a long-term perspective of several years to several decades, rather than being swayed by short-term stock price fluctuations, dividend growth stocks are perfect for you.
The longer you hold them, the greater the compounding effect becomes, and the total amount of dividends you receive will also increase.
The appeal lies in being able to nurture them carefully, much like growing a "money tree."

How to Choose Dividend Growth Stocks? 3 Points of Focus

"I understand the appeal of dividend growth stocks, but how exactly should I choose them?" We will answer that question.
Here, we will introduce 3 points to pay attention to when selecting stocks.

1. Check the "Number of Consecutive Years of Dividend Increases"!

How many consecutive years a company has increased its dividends is an important indicator of its stability and its stance on shareholder returns.
For example, companies with "10+ consecutive years of dividend increases" or "25+ consecutive years of dividend increases (sometimes called Dividend Aristocrats)" have a track record of growing through economic cycles and rewarding shareholders.

2. Is the "Dividend Payout Ratio" Within a Reasonable Range?

The dividend payout ratio is an indicator that shows what percentage of a company's earned profit is paid out to shareholders as dividends.
Calculation formula: Total Dividend Payout ÷ Net Income × 100 (%)
If the dividend payout ratio is too high, there is a possibility that the company is pushing itself to pay dividends, and there is a risk of future dividend cuts.

3. Don't Forget the Company's "Performance" and "Financial Situation"!

No matter how long a company has been increasing dividends, if its performance deteriorates or its financial situation is unstable, there is a possibility that future dividend increases will stop or dividends will be cut.
Be sure to check the company's basic information, such as whether sales and profits are growing steadily and whether the equity ratio is sufficient.

Know the Precautions for Dividend Growth Stock Investing

While dividend growth stock investing is attractive, there are some points to keep in mind.

• Risk of Dividend Cuts or Omissions: There is always a risk that dividends will be reduced (dividend cut) or stopped (no dividend) due to factors such as deteriorating company performance or changes in management policy.

• Stock Price Fluctuation Risk: As long as it is stock investment, the risk of stock prices falling cannot be avoided. Keep in mind the possibility that the stock price may fall below the purchase price.

• Taxes are Applied When Receiving Dividends: When you receive dividends, taxes are basically deducted. Therefore, keep in mind that you cannot receive the full dividend amount presented by the company.

Understanding these risks, it is important to keep diversified investment in mind and invest with a long-term perspective.

Summary | Dividend Growth Stocks are the Best Gift for Your Future Self!

In this article, we have explained in detail about the "power of dividend growth stocks."

Investing in dividend growth stocks brings many benefits, not only the joy of increasing dividends received, but also asset growth through compounding effects, expectations for stock price appreciation, and preparation for inflation.

Of course, investing involves risks, so you need to understand those risks and manage them within the scope of your risk tolerance.
By gathering information thoroughly and building up your investments steadily with a long-term perspective, it should contribute significantly to your future asset formation.

It will surely become a reliable ally that enriches your future.