3 Dividend Investing Strategies that Make Money Now

Fine Tune Your Dividend Strategy To Meet Your Financial Goals

More often than not, different dividend investing strategies get lumped together. Done so in what is known as dividend growth investing.

Conversely, it’s important to understand that a dividend stock investing strategy can be tailored to meet your specific investment goals.

As a result, I would like to discuss several dividend strategies today. Also, the pros and cons of each.

That’s the plan, so why don’t we get moving…

3 Dividend Investing Strategies

Each of these approaches to dividend-paying investments has the potential to earn solid investment returns. However, choosing one over another depends on what you are trying to accomplish with your finances.

The 3 dividend strategies are…

  1. High dividend income – low growth
  2. High growth – low dividend income
  3. Balanced growth and dividend income

Next, let’s go through each of these dividend investing strategies one at a time…

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Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

Dividend Investing Strategy #1: High Dividend Income – Low Growth

This strategy focuses on stocks with higher dividend yields. Typically, 5% or more

Furthermore, the stock’s dividend rate per share may be increased by management. However, historical dividend growth is rather low.

Let’s say, in the 1% to 3% range. Also, the potential for a more rapid dividend growth rate in the future is limited.

What Types Of Stocks Are A Fit for Dividend Investment Strategy #1?

Companies and their stocks that fall within this category of dividend investing strategy have several things in common.

First of all, they tend to operate in mature industries that produce abundant cash flow from their operations.

Furthermore, the potential for future business growth is limited. Thus they have relatively few internal investment opportunities offering high returns.

Thus, management chooses to share a large portion of its earnings and cash flow with investors. And do so in the form of cash dividends.

As a result, stocks like this have higher dividend payout ratios vs lower ones.

A higher payout ratio simply means management shares a large percentage of earnings and cash flow with its shareholders. Sometimes as much as 80-90%.

Oftentimes, master limited partnerships and real estate investment trusts work well for investors here. However, here is a specific example from a different industry…

Specifically, Altria (NYSE: MO). Operating in the cash-rich, tobacco industry. A business model that is in secular decline.

However, in recent years, Altria shares have sported a big dividend yield in the 8-9% range. Also, management has increased the dividend rate per share by several percentage points each year.

Finally, the dividend payout ratio runs at about 80%.

Pros And Cons Of The High Dividend Income – Low Growth Dividend Strategy

As with anything in life, choosing one path versus another has tradeoffs. So, let’s address the pros and cons of pursuing this particular dividend investing strategy.



  • Higher chance for dividend reductions
  • Dividend growth may not keep up with inflation
  • Higher tax liability on dividend earnings

Who Is The High Dividend Income – Low Growth Strategy Best For?

First of all, this dividend stock strategy is suitable for anyone that wants to maximize their cash flow from dividends right now. Thus, needing that cash to pay for monthly expenses without selling shares.

Furthermore, any investor that desires the certainty of investment returns from recurring dividends. Thus, not needing to rely on stock prices.

Perhaps perfect for an investor in their retirement years. Desiring to augment their other forms of retirement income with dividends.

Next, let’s consider the opposite end of the spectrum. By moving on to our second of three dividend growth stock investing strategies.

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Dividend Investing Strategy #2: High Growth – Low Dividend Income

This dividend investment strategy focuses on stocks with lower dividend yields. Typically, less than 3%.

However, dividend investors expect these companies to increase their dividend rates rapidly. For example, 7% to 10% annually. Sometimes more!

What Types Of Stocks Are A Fit For Dividend Investment Strategy #2?

Just like in dividend stock strategy #1, companies and their dividend stocks that fall into this strategy have some common characteristics.

First of all, they operate in industries that have high growth potential. Thus, they have numerous internal investment opportunities that offer good potential returns.

As a result, management must be highly selective in how it allocates its financial resources. Choosing to share only a small portion of its earnings and cash flow with investors in the form of cash dividends.

Since the more dividends that are paid. Results in less cash available for making internal business investments.

Specifically, important investments that will increase future earnings. And support a rising stock price.

As a result, stocks like this have lower dividend payout ratios. Meaning management chooses to share a lower percentage of earnings and cash flow with its shareholders. Sometimes as little as 20-30%.

A good example of a stock that fits with this dividend investing strategy is Microsoft (NASDAQ: MSFT). Operating in the rapid growth technology industry.

In recent years, Microsoft shares have had a dividend yield of roughly 1%. However, management has been generous with annual dividend rate per share increases.

Since 10% dividend hikes have been common. While the dividend payout ratio has floated in the range of 20%-30% of earnings.

Pro tip: You can find stocks that fit this strategy by using the Motley Fool Stock Advisor.

Pros And Cons Of The High Growth – Low Dividend Income Strategy

This leads us to the advantages and disadvantages of pursuing high dividend growth. As these dividend payers also have specific pros and cons…


  • Good opportunity for share price increases
  • Minimizes tax liability on dividends earned
  • A higher degree of dividend safety
  • Dividend increases typically outpace inflation


  • Generates relatively little dividend income
  • Investment returns are reliant on rising stock prices
  • Investors may need to sell shares to generate cash

Who Is The High Growth – Low Dividend Income Strategy Best For?

This dividend strategy is best for someone that doesn’t need to rely on dividends as a primary source of income.

Also, an individual with patience and discipline to invest for the long term. Thus, riding out the ups and downs of the stock market over the years.

As a result, I think this strategy is perfect for young dividend investors. With long-term investment time horizons.

For what it’s worth if I were still in my 20s. This is the dividend strategy I would choose to pursue.

Dividend Investing Strategy #3: Balanced Growth And Dividend Income

Our last dividend investing strategy seeks to find the “sweet spot”. Doing so by finding the perfect balance between dividend growth vs dividend income.

Here, dividend investors search out dividend yields between 3% and 5%. Looking for such companies that also increase their dividend rates per share by 4% to 7% annually.

Thus, providing a nice balance of earning dividend income today. With the potential for solid dividend growth in the future.

What Types Of Stocks Are A Fit For Dividend Investment Strategy #3?

So, what does a company that fits this strategy look and feel like?

Well, these stocks that pay dividends, balance the best of what our first two strategies offer. Operating in mature, cash-rich industries. That still offers ample business growth potential

Internal investment ideas and opportunities to support growing earnings still exist.

However, even after satisfying these investments each year. Management still has financial resources available to reward investors with a rising stream of dividends.

As a result, stocks like this have attractive dividend payout ratios.

The ratios are neither too high to put dividend safety at risk. Nor too low, where cash is hoarded for other more questionable purposes.

Thus, management still chooses to share a sizeable amount of company earnings and cash flow with shareholders. With a dividend payout ratio often ranging from 35% to 75%.

Good examples of stocks that fit with this dividend investing strategy are AbbVie (NYSE: ABBV) and Clorox (NYSE: CLX). Also, you will find many stocks in this category that are known as Dividend Aristocrats.

Pro tip: You can find stocks that fit this strategy by using the Simply Investing Report and Analysis Platform.

Pros And Cons Of The Balanced Growth And Dividend Income Strategy

Honestly, from my perspective, there isn’t much not to like about this strategy.

Because it provides a healthy dose of dividend income today. While not sacrificing dividend growth in the future.

It is the essence of a compounding dividend income stream. Where, year after year, an investor earns dividend increases on top of prior dividend increases.

Perhaps the biggest downside is there is a limited number of stocks that consistently meet these criteria. And they tend to operate in relatively few industries.

Think of it this way…

Over time, it’s relatively easy to find stocks with either very high or very low dividend yields. However, finding a moderate dividend yield with excellent dividend growth prospects takes some digging.

The best time to buy these companies is during stock market sell-offs. When their dividend yields have risen. Without compromising future dividend growth.

Of course, it’s easier said than done buying stocks when they are going down. But that’s what the most successful investors do.

Who Is The Balanced Growth And Dividend Income Strategy Best For?

This is my preferred dividend strategy. And the one I have implemented during most of my years as a DIY dividend investor.

In my opinion, it’s a solid strategy for participating in the stock market, earning dividend income, and generating capital gains. But, for not being entirely reliant on share price appreciation to earn acceptable returns.

However, as with any stock market investment, it’s always important to have a long-term investment horizon of at least 5 years.

Preferably, investors that pursue this dividend strategy, can have a buy and hold forever mentality. Using dividend income to support their lifestyle in future years. Without needing to sell shares.

Okay, that’s our 3 dividend stock strategies. So, allow me to wrap up with a few parting thoughts…

Dividend Investing Strategies

Don’t fall into the trap of thinking dividend growth investing strategy is a one size fits all investment approach. Because it is not.

You can choose to pursue any one or a combination of these 3 dividend investment strategies:

1) High dividend income while sacrificing dividend growth,

2) Rapid dividend growth at the expense of current dividend income, or

3) Seek to balance dividend growth and dividend income.

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Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.

Dividend Investing Strategies Explained