High yield is one thing. But you still need growth.
Over time, a stock's rise is correlated with its earning power. Buying stocks that steadily increase earnings will also give you dividends that grow as well. That's because a company usually pays out a certain percentage of earnings as dividends.
Growing wealth isn't difficult, but it does take time. That's why long-term investing is essential.
As you reinvest your dividend income, you buy more shares each year and each of those shares will pay you an incrementally bigger dividend. And as you repeat the process, the amazing power of compounding takes over and generates wealth to make you richer.
Here are two stocks that could help you build up your retirement wealth in a safe way over time.
First up, Westpac Banking Corp (ASX: WBC), the well-known big four bank, has one of the better records among the banks for growing dividends. Currently, the stock pays a 5.6% yield fully franked. Very nice, but even better is the 67% rise in dividends since 2009.
After a strong rise in earnings over the past several years, its dividend growth rate may slow down some, but investors have to think of the long term and what the bank will be like 10 years from now. If it can repeat the past 10 years' 9.5% average annual dividend growth, it could double its dividend in about seven years.
Transurban Group (ASX: TCL) is another stock that has a long dividend growth horizon ahead of it. As a toll road and tunnel operator, its income streams will flow over decades. Traffic invariably increases over time and more roads are required, so the company has a very promising growth profile.
Dividend growth was pretty strong over the past five years, thanks to the extensive portfolio of major motorways in Sydney and Melbourne. Now, with the recent acquisition of five of the six tollways in Brisbane, consensus forecasts are for dividends to rise an average 10% annually over the next two years. Similar to Westpac, if Transurban can sustain that growth, shareholders could see their annual dividend double within a decade.
There are no "get rich quick" schemes in investing really. The truly smart money plans for the future and gets rich safely.
