Why 2021 Isn’t The Year For Dividend Growth Stocks

I’ve been hearing a lot about how 2021 is going to be a huge year for “value” stocks and dividend growth stocks.

Due to a confluence of factors – vaccines, stimulus, the reopening of the US economy, a broad market rotation, the disparity in valuations, etc. – relatively cheap stocks that pay growing dividends are favored by almost everyone going into 2021.

I’m sure you’ve heard this narrative. I doubt I need to remind you of it.

But just in case you haven’t heard, how about this, this, this, or this.

As a dividend growth investor, I’m on the same page.

I, too, think 2021 is going to be a great year for high-quality businesses that pay reliable, rising cash dividends.

However, I differ from this narrative in one major aspect.

I think every year is a great year to be a dividend growth investor.

Even 2020, pandemic and all, has been great for dividend growth stocks. Deals were everywhere in the spring and summer, and massive dividend raises have been coming in hot and heavy all throughout the year.

I’ve been buying high-quality dividend growth stocks since 2010, at the age of 27.

And I must say, dividend growth investing as a strategy has worked every single year.

This strategy has treated me exceedingly well.

The five-figure dividend income my six-figure portfolio produces is enough to cover my bills.

I was able to quit my day job and retire in my early 30s.

A dream come true.

It’s such a dream, in fact, that I’ve gone out of my way to inspire others who share that dream. I’ve even penned two best-selling books on using dividend growth investing to achieve financial independence and retire early: The Dividend Mantra Way and 5 Steps To Retire In 5 Years.

See, there’s a simple truth at play that doesn’t revolve around any one calendar year: World-class businesses with durable competitive advantages that reward shareholders with rising cash dividends should serve as excellent long-term investments.

Meanwhile, those ever-larger cash dividends can be the “golden eggs” you live off of, which allows you to leave the “golden geese” be. You let the gaggle grow fat and happy, never slaughtering them to put food on the table. And they’ll continue to pump out ever-more and ever-larger golden eggs.

I don’t know how much more you could possibly want or expect.

Building up a gaggle in 2021 should be no more special or rewarding than it was when I started doing so in 2010. It’s a fantastic and very intelligent thing to do no matter what year it is.

Now, I can’t say that a certain basket of dividend growth stocks will beat the broader market next year. I’m an investor, not a trader. If you’re playing things by the week or the month, I can’t help with that game.

Moreover, beating some other group of stocks, particularly over a short period of time, isn’t my aim. My aim is to build a sustainable source of passive income that covers my bills and grows faster than inflation.

And if that’s your aim, I can’t think of a better way to accomplish it than to invest in high-quality dividend growth stocks at appealing valuations.

Speaking of appealing valuations, that’s obviously what potentially makes 2021 such a momentous year. The valuations on some high-quality dividend growth stocks, especially relative to certain pockets of the market, are more compelling than usual.

However, I’ve found that there are opportunities in all market conditions. Even in an expensive store, you can always find a sale or two.

In the end, I agree with the growing chorus of voices. I think 2021 is going to be a great year for dividend growth stocks. It’s just that I think all the years thereafter will also be great years for dividend growth stocks.

What do you think? Will 2021 be a great year for dividend growth stocks? Why or why not? 

Thanks for reading.

P.S. Make sure to check out some excellent resources for making better investment decisions, becoming financially free, and living off of dividends. 

Photo Credit: Annie Spratt