Dividend Growth is Psychological

Throughout the years I have tried to quantitatively justify my attraction to dividend growth investing to both myself and others.  However, I never felt 100% satisfied with my explanations.  It is not that I did not believe the math & analysis or the books, articles and studies I have read on the subject. I just knew there was something else and my conclusion at the end of the day is that psychologically it comforts me.

Through self-reflection I have come to the conclusion the reasoning why it is psychologically comforting is simply a reflection of the environment I was raised in.  Since my earliest memories of childhood, I have been told that to be an adult you need to earn a regular paycheck and pay bills.  This is what I was taught by both my parents and educators.  This is how children’s books, cartoons, media, and movies depicted adults.  When I looked around at other adults (Aunts, Uncles, friends, etc..) this is what everyone else was doing, this was and still is the social norm.  Essentially, I have been psychologically programmed to expect a regular paycheck and to pay my bills every month.

This psychological programming explains why I was struggling to envision how to drawdown my wealth when I hit financial independence or retirement.  For me, saving a pile of cash was intended for buying something or to have in emergencies.  But to use a pile of cash to drawdown from to pay for day-to-day expenses was just difficult to get my head around.  My only choices were to either break my programming or find a different alternative.  I obviously choose the easier of the two paths and went to the alternative by using dividend growth investing which focuses on investing for cash flow. 

A growing cash flow felt like such a natural replacement for a paycheck.  I would get regular disbursements and the dividend growth aspect was like getting an annual raise at work.  Mentally this was a replacement for what I have been doing for the last 35+ years.  I completely understand that if I embrace a total return investing style (equity growth + dividends) my wealth might be greater however I also want to be mentally comfortable in so much that I have the luxury of focusing on other things in life and not money.   This is the number one reason why I chose and will keep continuing down the dividend growth investing path.  From my perspective I would rather spend my energy on other things in life rather than undoing my programming. Yes there are risks with this investing style but there are risks with any investments and that is okay if you recognize what they are and plan for them accordingly.

Today we are in a bear market with the S&P down 20% and the NASDAQ down 28%.  For young investors that have never experienced a bear market it seems like the worst of times.  For older investors it feels like retirement just moved that much further out.  For retirees that did not have a significant cash position now face a risk of cashing out more shares than they planned.  But as a dividend growth investor my dividend income is not down 20 or 28%.  As a point of fact, my June dividend payments this year will be larger than last June and next year’s payment will be larger than this year.  This is a comforting feeling and leads me to a feeling of being simply content.  Being content I can relax and enjoy the simple things in life while not stressing over finances.  What is your motivation for choosing dividend growth investing?

3 thoughts on “Dividend Growth is Psychological

  1. About 6 yrs ago, when I was looking for an investment strategy, I came across dividends and some time after that growth of dividends. So I started experimenting with some US aristocrats like KO and JNJ. I figured everyone knows about KO and that one seems likely to go on forever.
    Due to work related circumstances I sold 90% in 2018 (thought I was about to quit my job) and only kept the forreign (US, Canada, Finland, Norway, Denmark) dividend portfolio intact. A year later I started investing again and then came covid in february 2020 and off course that was an extreme opportunity as I was aprox 80% cash at that time.
    The strategy of dividends and dividend growth has mainly been an theoretical aspect and it is just lately that I see the IRL side off it.


    • Thank you for sharing NLI, it is interesting as it also took a financial crisis for me (2008 recession) to take a closer at the strategy before the idea clicked in my head of this would work in real life. From 2009 to 2010 I watched friends and neighbors loose their jobs and go through their emergency money and then they started dipping into retirement savings before they found new jobs. It was during this time I discovered the strategy and it potential.


  2. Much like you, I find comfort in knowing that the income from dividends will be able to one day replace my paycheck. Dividend growth investing is much less stressful for me than growth investing. It doesn’t matter if the market is going up or down, my dividends continue to grow.


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