Do Dividends Increase Over Time? (Yes: With No Money Required!)

3 Ways The Power Of Dividends Work With No Cash Required

Today, I would like to address how dividends increase over time. With no additional money or investment required. It’s about the power of dividend growth.

A perfect topic for anyone looking for more income from an established dividend portfolio.

Or, for beginners getting a start with dividend investing. To see what they can look forward to. After building a dividend portfolio.

Because initially, it takes money to make money through dividend investing. But, after you get started. You can increase your dividends over time with no additional investments required.

To get started, here’s how dividends grow annually…

Do Dividends Increase Over Time?

Yes, stock dividends will grow over time. Furthermore, by maintaining a portfolio of dividend growth stocks, reinvesting dividends, and executing smart portfolio management. You can increase your dividends over time with no additional investment required.

If this sounds good to you. Allow me to better summarize exactly how to go about benefiting from the power of dividends…

How Dividends Grow Dividends – 4 Steps To Put The Power Of Dividends To Work

To increase your dividends over time, implement these dividend investing practices:

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

woman increasing dividends over time

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

Stock Dividends Increase Over Time Because Of Organic Dividend Growth

By holding a portfolio of dividend growth stocks, your dividend income will increase over time.

Because many companies pay dividends. And increase their dividend rate per share annually.

So, look to hold the following types of stocks in your dividend portfolio…

Dividend Kings.  These companies have increased their stock dividends for at least 50 years in a row.

And…

Dividend Aristocrats.  Companies whose stocks are included in the S&P 500 stock market index. That have paid higher dividend rates for at least 25 consecutive years.

Invest in these kinds of dividend-paying stocks early on in your investment journey. And hold them long-term.

By doing so, you will experience the best kind of growth in dividend income. I refer to it as organic dividend growth. Or, passive dividend growth.

Because all you have to do after investing is hold your stock. And enjoy a rising dividend income stream.

No additional money or effort is required.

Looking to find dividend growth stocks? Check out the recommendations in the Simply Investing Report and Analysis Platform.

Here’s another effortless way to make greater amounts of dividend income. With no money required…

Dividends Grow Dividends Through Dividend Reinvestment

It is by reinvesting all dividends received. Because this is how dividends grow dividends.

In other words, you will start to get paid more dividend income. Because reinvested dividends start earning new dividends of their own during a company’s next payment cycle.

You can reinvest your dividends in one of three ways…

1. Participate in one or more company-sponsored dividend reinvestment plans (DRIPs).

2. Request your stock broker to reinvest all dividends on your behalf. Doing so immediately back into the stock that paid them.

3. Let your dividends accumulate in cash. Then monthly or quarterly. Invest the cash lump sum in the dividend stocks of your choosing.

Thus, there is no new cash out of your pocket required. By putting your dividends to work through dividend reinvestment.

Furthermore, you will enjoy the benefits of dollar cost averaging.

Next, dividends grow every year by doing this…

how dividends grow dividends in your sleep

Stock Dividends Can Grow Long Term Through Portfolio Management

Selectively selling and buying your stocks that pay dividends. To emphasize stocks with higher dividend yields.

Here’s how to go about maximizing the power of dividends using this approach…

Trim Positions In Lower Yielding Stocks

First look, for the stocks in your portfolio with low dividend yields. For example, let’s say 1.5% or less.

Typically, these will be companies whose stock price has performed well. Because stock prices and dividend yields move in the opposite direction.

So, if a dividend stock has experienced a rapidly rising stock price. It will often have a low dividend yield.

I have a couple of stocks in my portfolio like this. Specifically, Microsoft and Apple. Their dividend yields have been running at less than 1%.

When this is the case sell some or all of your shares.

Not only will you be reducing exposure to low dividend yield stocks. But you will also be taking some profits off the table from your winners.

Furthermore, it’s never a bad idea to realize a profit.

And through this approach, you buy lower and sell higher. A tried and true method for making money off your investments.

But you are not done, making your dividends go up this way. Next, you have to…

Add To Positions In Higher-Yielding Stocks

Identify one or more stocks that pay dividends having a higher dividend yield. Versus the stock or stocks you just sold.

Take the cash from the stock you sold. And invest it in a different stock with a higher dividend yield.

Doing so will increase the dividend yield on your portfolio. With no new cash out of your pocket required.

Referring back to my example…

I could sell 25 shares of my Microsoft stock, currently yielding less than 1%. And put the cash from the sale into International Business Machines.

IBM is another technology stock. But one with a significantly higher dividend yield versus Microsoft.

Thus, by trimming back one stock position. And adding to another.

I have redeployed my capital to increase my dividends over time. With no money out of my pocket required.

More importantly, you can do the same!

Looking for some good investments for your money? Then I suggest the Motley Fool Stock Advisor. For stock recommendations delivered to your inbox every month.

However, I have one word of caution when looking to grow dividends long-term…

Watch Out For Income Taxes

When you sell appreciated stock with a low dividend yield. Income taxes may be due on your capital gains.

If that’s the case, be sure to reserve some funds from your sale to settle up the tax liability. Before investing the rest in a higher dividend yield stock.

Everyone’s tax situation is different. So be sure to consult with your tax advisor.

Or, consider holding your stocks in an Individual Retirement Account (IRA). To defer or avoid income taxes altogether.

Set up an account at Webull, my stockbroker of choice. For zero-commission trading in an IRA account. To start investing in a secure financial future right away!

And one more point on this strategy sell and reinvest strategy…

Watch Out For Excessively High Dividend Yields

When transitioning from lower dividend yields stocks to higher ones. Be careful investing in stocks with excessive dividend yields.

Because high dividend yields typically indicate greater investment risk.

It’s one thing to sell a stock yielding 1%. And invest the proceeds in a stock that yields 4%.

However, it’s entirely different putting the money in a stock with a 10% dividend yield.

Yes, for the time being, your dividends may increase. However, you may also be dramatically increasing your investment risk.

Because high dividend yields are often not sustainable into the future. Most importantly, if you experience one or more dividend reductions in your portfolio. Chances will be reduced that your dividend income will increase over time.

So, if you are unsure. It’s never a bad idea to stick with Dividend Kings and Dividend Aristocrats.

Because if you have been wondering, do dividends grow over time? Kings and Aristocrats are proof they do.

Okay, ladies and gentlemen. That’s all I’ve got for today.

So, allow me to wrap up with a few parting thoughts…

Do Dividends Increase Over Time?

Now you understand how stock dividends increase over time. And with a mature dividend portfolio, you can benefit from organic dividend increases, dividend reinvestment, and swapping low-yield stocks with higher ones.

Put the power of dividends into practice. And watch your portfolio’s income increase over time. With no money required!

Good luck with your investments. And thanks for reading!

If you enjoyed this article. Be sure to check out our…

Dozens of Different Dividend Investing Topics

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Author Bio, Disclosure, & Disclaimer: Please join me (Tom) as I try to achieve my goals, find my next place to live, and make the most of my money. But understand, I am not a licensed investment adviser, financial adviser, real estate agent, or tax professional. I’m a 50-something-year-old guy, CPA, retired finance professional, and part-time business school teacher with 40+ years of DIY investing experience. I’m just here because I enjoy sharing my findings and research on important topics. However, nothing published on this site should be considered individual investment advice, financial guidance, or tax counsel. Because this website’s only purpose is general information & entertainment. As a result, neither I nor Dividends Diversify can be held liable for any losses suffered by any party because of the information published on this blog. Finally, all written content is the property of Dividends Diversify LLC. Unauthorized publication elsewhere is strictly prohibited.

How Dividends Increase Over Time Explained