The Fun Thing About Planting Dividend Trees

moneytree

If I had to make a short list of my favorite things about following a dividend growth investing strategy, one of the spots would be devoted to the fact that even if you hit a tight spot in your life and cannot continue to invest, the companies that you have acquired continue to chug out profits and dividends. In other words, your dividend tree continues to grow even if you stop watering it with fresh cash contributions.

I’ll give an example. Let’s say you find yourself in a situation like this: You have $5,500 to invest in a Roth IRA account this year, but next year, you expect money to be tighter (maybe you are getting a new roof, sending kids to college, etc.) and won’t be able to make any investments. Some people may think that if you have to take investing “pauses” at some point in your life, you are somehow messing up. That is not the case at all. While the continual addition of capital can help the compounding process along nicely, the fact that you stop making new additions still means that the money already invested continues to compound. That is the fun thing about the snowball nature of compounding: even if you stop adding to the size of the snowball on your own, it still continues to get bigger even if you do nothing.

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