The Motley Fool

Dividend-growth stocks are a great opportunity to make a million

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The rate at which a company increases its dividend payments could be highly significant for all investors. Not only could it mean an improving income return at a time when inflation is moving higher, it may also indicate an improving outlook for the company in question. Furthermore, companies generally only increase dividends when their financial performance is strong, which could be another reason why stocks with fast-rising shareholder payouts could help to make you a million.

Inflation issues

Since the EU referendum, the rate of inflation has surged higher. It already stands at 3% and Brexit is still around 15 months away. Between now and then it would be unsurprising for confidence in the UK’s economic outlook to come under increased pressure.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Even if a trade deal is eventually signed between the UK and the EU (which now seems more likely after last week’s ‘breakthrough’ talks), the UK is taking an unprecedented step in leaving the EU. It could be positive or negative for the economy, but ultimately it represents major change that could cause sterling to weaken and inflation to rise.

Therefore, dividend growth could become a more pertinent issue over the coming months, as investors seek to generate inflation-beating dividend rises. This could make dividend growth stocks more popular and lead to higher capital growth.

Lower risk

Dividend growth may also indicate that the company in question offers a lower risk profile than a comparable company which retains more capital. If a business is experiencing financial difficulties or has a balance sheet which has excessive leverage, it is more likely to seek to retain profits in order to improve its financial standing. A company that is happy to pay higher dividends each year may have a stronger foundation for future growth. This could mean that it offers a superior risk/reward ratio.

Improving outlook

Similarly, a stock which delivers a rising dividend could have greater confidence in its future outlook. For example, it may be seeking to maintain its payout ratio at the same level each year and expects to utilise higher earnings growth in order to pay a higher dividend. Dividend policy is decided by company management, who are generally the best-placed to determine the future prospects for their industry due to their experience and knowledge of the sector. If they are happy to raise dividends rapidly then it could be a positive sign for the company’s financial outlook.

Takeaway

While focusing on dividend growth may not be the most exciting means of deciding which companies to buy and sell, it can provide guidance on the future prospects of a business. It can also help to determine the financial position of a particular business, which may lead to an improved risk/reward ratio across an investor’s portfolio. And, with inflation moving higher, it would be unsurprising if dividend growth shares became a key theme for 2018/19 – especially as Brexit draws closer.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.