Dear DTA,
I wish to learn about the stock market so that I can retire my parents early.
-Vinnie C.
Hi, Vinnie. It’s great to hear from you. Thanks so much for writing in.
One of our main goals is to empower our readers. That’s why we provide so much high-quality and high-value content.
These ideas can serve to help you reach your goals, making your dreams (financial and otherwise) come true.
I admire that, which is why I’ll do my best to help you toward that end.
Now, I want to quickly note that I believe I’m one of the best people to answer this question.
That’s not because I’m necessarily smarter or more informed than anyone else.
I say that because I personally retired from my career at 32 years old and became financially independent at 33 years old.
The five-figure and growing passive dividend income my real-money and real-life dividend growth stock portfolio generates for me is enough to cover my basic living expenses in life, which means I can go about life without a job.
The reason I’m sharing this is to show you that I’ve “been there, done that”. Successfully so, no less.
Better yet, I see no reason why the strategy I’ve used cannot work fabulously for anyone else, including your parents.
The investment strategy I used and still use is dividend growth investing.
I essentially lived a lifestyle that promoted savings, which allowed me plenty of excess capital with which to invest in some of the best businesses in the world.
Let me assure you, many high-quality dividend growth stocks do indeed represent equity in some of the best businesses anywhere.
You can check that for yourself by perusing David Fish’s Dividend Champions, Contenders, and Challengers list – a document that contains invaluable data on more than 800 US-listed stocks that have all increased their dividends each year for at least the last five consecutive years.
If you look through that list, you’ll find numerous blue-chip stocks.
Some examples?
There’s Apple Inc. (AAPL). Then you’ll see Coca-Cola Co. (KO). And don’t forget about Johnson & Johnson (JNJ).
These companies have the wherewithal and proven track record for paying growing dividends precisely because they run the wonderful businesses necessary to do so.
Coca-Cola and Johnson & Johnson, for example, have increased their respective dividends for more than 50 consecutive years.
That’s the kind of litmus test you want to see for a great long-term investment.
Furthermore, and more to the point, that growing dividend income can be an excellent foundation for the kind of growing passive income your parents could/would need for early retirement, freeing them from the necessity of having jobs in order to comfortably live and pay bills.
A diversified portfolio full of high-quality dividend growth stocks can generate significant passive income for someone.
This passive income is typically very reliable, because it’s funded by the growing profit wonderful, global businesses generate as they sell more products and/or services to more people over time.
And that passive dividend is an excellent hedge against inflation and rising expenses, due to the very nature of growing dividends.
Most high-quality dividend growth stocks (and certainly the three I just named) have increased their dividend payments much faster than US inflation for years, which is an excellent way for someone to protect themselves against inflation and see their purchasing power increase.
But isn’t this information moot without action?
Absolutely.
Fortunately, we’ve got you covered.
This response to your email is obviously just a quick primer on what could work for your individual situation.
As such, it’s impossible for me to go over every nuance of dividend growth investing.
But fellow contributor Dave Van Knapp put together a great series of articles that are designed to cumulatively educate both novice and more experienced investors alike on the dividend growth investing strategy as a whole – going over how it works, why it works, and how to implement it in your own life.
These articles are what he calls his “lessons” on dividend growth investing, and they’re very much worth a read.
And what about if/when you or your parents are ready to invest capital toward that early retirement goal?
Well, I highlight what appears to be an undervalued high-quality dividend growth stock every Sunday as part of the Undervalued Dividend Growth Stock of the Week series.
See, while dividend growth stocks can be excellent long-term investments, it’s important to make sure you’re sticking to quality businesses that are within your circle of competence.
Perhaps more importantly, you want to make sure you’re buying these stocks when the valuations are appealing, because paying way too much for even a great business can end up being a relatively poor investment, especially over the short term.
And that’s why I discuss a compelling long-term investment idea every Sunday that merits consideration based on all of these factors.
Early retirement is absolutely possible, Vinnie.
I say that with full confidence because I’m going about my life without needing any job at all. Even the writing I do is out of the love of it, not for the need of the income I may or may not make from it.
But early retirement will require a plan that’s carefully and strategically executed.
And I believe that intelligent dividend growth investing can be a vital part of that plan.
The key, though, is getting started as soon as possible.
I wish you luck and success.
Jason Fieber
Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.