Dividend stocks can be powerful wealth builders. With some, it’s possible to receive an unbroken stream of rising dividends for decades. And finding companies growing their dividends is key to my plan to achieve £500 a month in income.
As an illustration, I’d eventually need capital invested of about £150,000. That’s assuming my stocks paid a yield of around 4% each year in dividends. That would give me an annual passive income of £6,000, or the targeted £500 a month.
However, £150k can seem like a daunting goal when starting from scratch. But I’d do three things. Firstly, I’d invest as much money as I could each month. Secondly, I’d pick stocks with a record of consistent dividend growth. And third, I’d reinvest dividends back into each company’s shares to help compound my gains.
Nothing is guaranteed because all shares come with risks as well as positive potential. But I’m certain the goal is achievable over a timescale well within a normal working lifetime. And that’s with investing just a few hundred pounds each month while on an average salary.
Escalating dividend streams
I’d choose my dividend stocks with care. For example, defence, aerospace and security company BA Systems has been a robust dividend-payer for many years. And it has increased its dividend a little annually since at least 2016. The company even put its dividend up through the pandemic while many others were cancelling or postponing shareholder payments.
Meanwhile, the compound annual growth rate of the dividend is running at just over 3.3%. And with the share price near 799p, the forward-looking yield is around 3.5% for 2023. I think that valuation looks like an attractive entry point into that escalating dividend stream.
However, international sales, marketing and support service company DCC has been doing even better for its shareholders. The business has an impressive multi-year record of dividend-raising. And that continued through the pandemic, thus proving the resilience of operations.
The compound annual growth rate of the dividend is running at almost 9.5%. And with the share price near 5,230p, the forward-looking yield is around 3.8% for the trading year to March 2024. I’d be keen to pick up some of the shares to start collecting those rising dividends.
My top dividend grower
But CRH even beats DCC when it comes to shareholder dividends. The company is a building materials business operating in North America and Europe. And its been growing its shareholder dividend at a compound annual growth rate of 11%.
Just like BA Systems and DCC, the company didn’t miss a beat through the pandemic. And shareholders enjoyed the annual rise they were used to. The share price has been around 3,177p recently. And at that level, the forward-looking yield is about 3.7% for 2023.
Once again, I think that looks like a good deal. And I’d likely buy some shares and start tapping that strong torrent of dividends.
However, even past top performers have the potential to falter in the years ahead. All businesses can face setbacks from time to time. And company directors have the full power to trim or halt dividends whenever they choose.
Nonetheless, I think these are decent examples of steady, dividend-growing businesses. And they could help me execute my plan to achieve £500 of monthly income.
