Investing for dividend growth is one of the most reliable long-term wealth-building strategies. For my Monthly Dividend Multiplier service subscribers, I recommend some additional portfolio management techniques to enhance long-term total returns.
Looking at the long-term results of stocks that steadily grow their dividends, the average compound total return growth rate (CAGR) will end up very close to the average yield plus the average annual dividend growth.
For example, on average, Prudential Financial (PRU), which has grown its dividend for 16 consecutive years, yields 5% and has grown its dividend by 6.7% over the last five years. Adding the yield and dividend growth gives an expected long-term CAGR of low double digits.
My Monthly Dividend Multiplier service recommends a portfolio of about 20 dividend growth stocks (like PRU) from various sectors.
Over the years, I have found that while these stocks will hit the target CAGR for the long term, there will be a lot of intermediate share value fluctuation. I have instituted a quarterly rebalancing system to take advantage of these swings, with which I set target weightings for each stock. The portfolio rebalancing tool lets subscribers enter the total value of their Monthly Dividend Multiplier holdings, and the calculator shows how many shares a subscriber should own.
I guide subscribers to use the rebalancing tool at the end of each quarter. That step automatically pushes an investor to sell a few shares of the stocks that had positive quarters and buy a few that underperformed for the previous three months. I describe it as buying low and selling high, on the fringe.
The dividend growth plus yield calculation averages similar to Prudential across the portfolio, so in the long term, investors following the guidance can expect a low double-digit CAGR for the portfolio.
From my experience and tracking, the quarterly rebalancing adds 3% to 5% to the annual returns. Putting it all together, you get to my target of 15% long-term CAGR. A 15% compounding return will double your committed capital about every five years. The Monthly Dividend Multiplier service is excellent for someone with five or more years until retirement and who wants to grow the money with above-average returns until retirement.
Also, someone in the early retirement years needs to plan for at least 30 years of living off their investments. A portion of a retirement account committed to the Monthly Dividend Multiplier plan will ensure adequate money is available in his 80s and 90s.
I have been tracking the quarterly portfolio returns for four years now. The average quarterly return has been 4.33%—about 1.3% per quarter—which is better than the S&P 500.
