In this post I’m going to explain why a dividend growth strategy works for me.
1.In my opinion a growing dividend is usually a good indicator that a company is healthy (although certainly not the only indicator). Annual dividend increases indicate that the executive and director insiders are sufficiently confident in the long term prospects of the business to payout their earnings as dividends.
2.Dividends from Canadian sources are taxed at a preferential rate (see this post for details on the tax treatment of dividends)
3.Commission costs are dramatically lower as positions are usually held for the long term.
4.Annual dividend growth can protect your income stream against inflation. Additionally, companies with a history of increasing their dividend can usually pass much of the price inflation on to their customers.
5.The share price of the company usually increases with the dividend (ie-you don’t see many high quality blue chips yielding more than 4% because the share price increases with the dividend)
6.I have the patience, risk tolerance and long term time horizon necessary to ride out market cycles and successfully implement a dividend growth strategy.