Increasing buying power with dividend growth is not a strategy to hit regular home runs and generate multiples of share price appreciations in a short term. This does not mean that dividend stocks can not deliver hundreds of percent returns. Dividend growth stocks are usually extremely healthy companies that are growing their cash flow, which should lead to higher stock prices. But the goal for a dividend growth investor is getting paid more each year from their investments than the previous year.
A little amount of inflation means you are paying more today than what you paid yesterday. So you need more cash today than you needed yesterday to buy the same things. But over the past year, inflation has risen 5.4% the most in decades. So, this year you need significant more money to pay for food, energy or clothes, among many other important things to you.
Example:
If you invested in Broadcom, your dividend payments increased an average of 46% per year in the last decade. This correlates with a 46% pay rise every year for 10 years. Over the past 10 years, Broadcom boosted its quarterly pay out from $0.08 per share to $3.60. It has raised its dividend every year for 12 years straight. Expect another substantial increase in December. With 46% annual raise, no doubt your buying power increased significantly.
Nowadays, with the prices of many items going significantly up, you need to protect your buying power more than ever. Dividend growth stocks do exactly this: they protect and grow your buying power.
Sven Franssen