What Should A Dividend Growth Investor Buy In 2024? (2024)

What Should A Dividend Growth Investor Buy In 2024? (1)

What should a dividend growth investor buy in 2024? What a fascinating situation we are in; still plagued with high inflation - although it slowed down a bit in late 2023, it went back up in the U.S. and possibly Canada in December - and with high interest rates, yet we might not end up in a recession, perhaps a soft landing. Makes it difficult to choose stocks…

Labor shortages will continue as we finally hit the wall with our aging population. More and more people retire while not enough young folks seek jobs to replace them. The search for qualified workers will support a form of inflation as unemployment rates should remain low despite their recent modest increases.

Rising salaries and low unemployment rates force companies to become more productive and efficient. When faced with rising costs, companies don’t sit around and complain. They go back to the drawing board and find ways to become more efficient. In the next two years, the world will belong to those who focus on productivity. This should be the cradle of the next bull run.

What we fear

The obvious! We fear a market crash that will take years to recover from. It wasn’t fun in 2022, but we somewhat kept the hope that the Fed would finally stop increasing interest rates. It did in 2023, but we can’t rejoice just yet.

While interest rate hikes have stopped, and there is talk of reduction sometime in 2024, the current higher rates will affect both consumers and companies who need to borrow, or refinance debt, for a while still. Not to mention recent disruptions to shipping routes through the Red Sea and Suez Canal raising the possibility of increasing inflation.

Therefore, the sequel to this movie may very well look like what we endured in 2008 when it took about four years to fully recover from the crash. Investors who were in their accumulation phase were smiling as they got the deal of the decade. But for retirees, it was another story.

Based on this experience, I suggest retirees keep a cash reserve of 18 months to 2 years’ worth of their retirement budget. You can then withdraw from your cash reserve without being too nervous about the stock market. Your dividends should be deposited in that cash reserve. Depending on the pace of your withdrawals and the yield generated by your portfolio, this strategy will extend the lifespan of your cash reserve up to 3-4 years (maybe more!). The cash reserve helps you sleep well at night on top of providing you with extra flexibility.

The investment strategy for 2024

Don’t overhaul your investing strategy and start over. Adjust your portfolio to ensure you are well-invested and poised for what’s coming. A potential long bear market affects investors who are invested and those with cash on the side. Here’s the playbook.

Invested investors (like me!):

  1. Review your portfolio; ensure it’s well-diversified across several sectors
  2. Identify weaker-rated stocks; re-examine if you still want to hold them
  3. Trim overweight positions
  4. Optimize your holdings with better stocks (strong metrics and growth potential)
  5. Build a cash reserve if you are retired and depend on your portfolio to generate income

Cash on the side investors (sitting, waiting, wishing…)

You could wait for years and never get today’s price again. Instead:

  1. Build a buy list right now
  2. Invest 33% of your money now
  3. Wait for a quarter, review earnings, and invest an additional 33%
  4. Rinse & repeat for another quarter to fully invest your money over the next 6 to 9 months.

The goal of this strategy is making sure your portfolio thrives no matter if you invest right before a market crash, or just as we embark on another 5-year bull market.

  • If you invest 33% just days before a crash starts, remember that major market crashes are intense, but the downward trend doesn’t last very long. Therefore, three and six months down the line, you’ll have bought during the dip, averaging down your position with cheaper prices.
  • Alternatively, if you invest 33% as just the market begins a 5-year bull run, you’ll slowly build a profit cushion with an average price below the market.

Start with the dividend triangle

I first screen stocks by using a simple but greatly effective tool called the “dividend triangle”. I look for leaders in their markets with strong growth vectors, i.e., companies with the ability to increase their sales and also show profit growth. Finally, I look for companies that will increase their dividends year after year. This is why the first three metrics in my filter, representing the dividend triangle, are:

  • Revenue growth (5-year trend)
  • Earnings per share (EPS) growth (5-year trend)
  • Dividend growth (5-year trend)

If you are concerned about market uncertainties, your best bet is to rely on companies with a strong dividend triangle. They won’t let you down during the next recession and will likely recover faster upon a market correction. I’m not the only one saying this, even Vanguard established that dividend growers outperform the market with less volatility.

What Should A Dividend Growth Investor Buy In 2024? (2)

3 Metrics won’t be enough for 2024

Using the dividend triangle gives you a good start, but that’s far from being enough. First, 5-year metrics only tell you what already happened. This is not a guarantee for the future. To have a better idea of where to invest in 2024, I look at the 5-year trend for other metrics in addition to the dividend triangle.

Look at the 5-year trend for the following metrics:

  • Dividend triangle trend (how revenue, EPS, and dividend increase year per year)
  • Payout and cash payout ratios. Learn more here.
  • Long-term debt and debt-to-equity ratio. Learn more here.
  • Cash flow from operations. Learn more here.
  • Price to earnings ratio (PE).

Any jump or sudden drop in the metrics needs to be explained. Studying trends tells me which quarterly earnings report to dig through to find answers to my questions. Once this is done, I’m ready to write my investment thesis.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

The Dividend Guy




My name is Mike and I’m the author of The Dividend Guy Blog & The Dividend Monk along with the owner and portfolio manager here at Dividend Stocks Rock (DSR).I earned my bachelor degree in finance-marketing, own a CFP title along with an MBA in financial services. Besides being a passionate investor, I’m also happily married with three beautiful children. I started my online venture to educate people about investing and to be able to spend more time with my family. I started my career in the financial industry back in 2003. I earned several promotions along with a good pile of diplomas. I had lots of fun working with clients in private banking for half a decade, but thought I could do more with my life. In 2016, I decided to take a leap of faith and left everything behind to travel across North America and Central America with my family. We drove through nine countries and stayed three months in Costa Rica before returning home. This was an eye-opening adventure that led me in 2017 to quit my job in the financial industry and pursue my dream; helping others with their personal finance through my investing websites. You just found the reason why I quit my suit & tie job!

I'm Mike, the author of The Dividend Guy Blog and The Dividend Monk, as well as the owner and portfolio manager at Dividend Stocks Rock (DSR). With a background in finance-marketing, a CFP title, and an MBA in financial services, I've dedicated my career to financial expertise. I started in the financial industry in 2003, gaining promotions and diplomas while working in private banking for five years. In 2016, I took a leap of faith, leaving everything behind to travel across North and Central America with my family.

Now, let's delve into the article discussing the considerations for dividend growth investors in 2024. The article touches upon several key concepts and strategies:

  1. Current Economic Situation:

    • The article mentions the challenging situation of high inflation and interest rates in the U.S. and possibly Canada. It explores the impact on stock choices, labor shortages due to an aging population, and the need for companies to focus on productivity.
  2. Concerns and Precautions:

    • There is a concern about the fear of a market crash and its potential impact on investors. Retirees are advised to keep a cash reserve of 18 months to 2 years' worth of their retirement budget to navigate market uncertainties.
  3. Investment Strategy for 2024:

    • The article provides a playbook for both invested and cash-on-the-side investors. Invested investors are advised to review their portfolios, diversify, and optimize holdings. Retirees are encouraged to build a cash reserve. Cash-on-the-side investors are given a strategy to gradually invest over 6 to 9 months, mitigating the impact of market fluctuations.
  4. Dividend Triangle:

    • The author introduces the "dividend triangle" as a screening tool for stocks. This triangle consists of three key metrics: revenue growth (5-year trend), earnings per share (EPS) growth (5-year trend), and dividend growth (5-year trend). Companies with a strong dividend triangle are considered resilient during economic downturns.
  5. Additional Metrics for 2024:

    • Recognizing that 5-year metrics have limitations, the article suggests looking at additional metrics for a better understanding of where to invest in 2024. These include the trends in dividend triangle metrics, payout and cash payout ratios, long-term debt, debt-to-equity ratio, cash flow from operations, and the price-to-earnings ratio (PE).
  6. Author's Expertise and Background:

    • The article is authored by me, Mike, who brings a wealth of experience in finance, marked by academic achievements and a successful career in private banking. The investment strategies and advice provided reflect my expertise and insights into navigating the complexities of the financial market.

In summary, the article offers a comprehensive outlook on the challenges and opportunities for dividend growth investors in 2024, incorporating a blend of economic analysis, investment strategies, and the author's firsthand expertise in the financial industry.

What Should A Dividend Growth Investor Buy In 2024? (2024)
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