Many companies on the stock market offer what’s known as a dividend—additional funds that are paid to stakeholders on a reoccurring basis per share. This amount can vary, but it’s a generally appealing bonus that people often like to include as part of their overall investment strategy. It allows individuals to receive passive income in addition to maintaining the potential value of their initial investment.  If you want to take these earnings to the next level, employing a dividend growth strategy may be a way to maximize your potential over time. To illustrate how this technique works, here are a few essential things to know about dividend growth.

What Is a Dividend Growth Investment Strategy?

Companies that offer dividends to stakeholders will typically increase the rate of payment over time. While these increases may be small on a year-to-year basis, the cumulative payout will only grow more substantial the longer you hold onto the stock.

How Does It Differ From Other Strategies?

For a dividend growth strategy to be effective, you must hold onto shares for an extended period—usually about 10 years or longer—so that the dividend rate has time to climb. As such, it can require more patience than if you were to employ short-term methods. For this reason, any investments made for dividend growth should be with companies that show signs of stable growth rather than those that present a high risk of upheavals and downturns.

What Are the Advantages?

While a dividend growth investment strategy does take time and careful research, it does offer a few unique benefits over other methods. Most notably, people prefer this option because they can earn from stocks without having to sell them. Compared to regular income, dividend payouts are also taxed at a lower rate.

Although many opt to use this income for other purposes, others find that these earnings can be used to buy even more dividend-yielding stocks. If you employ this technique, you can build the total value of your portfolio while simultaneously increasing your dividend-earning potential.

How Much Will I Earn?

Earnings will depend on the stock’s historical dividend growth rate, the number of shares you purchase, and how long you intend to hold onto them. It’s best to work with an investment advisor who understands the complex formulas behind these projections so that you can choose a strategy that works best for your desired earning level.

How you plan a dividend growth strategy will determine the success of your portfolio. That’s why Headwaters Investment Counsel LLC is committed to helping clients explore the best options to help them achieve their goals. Serving the Kirtland, OH community for over 40 years, this firm understands how to develop robust plans that offer attractive returns and low risks—even in the face of adverse market performance. Visit the team online to learn more about how they can help you build a solid investment strategy. To discuss your goals with a financial advisor, call (440) 399-3359.