Just because a company pays a dividend, doesn’t mean it is not growing. Most dividend growth stocks that I focus on raise dividends annually and have done so for many consecutive years. They could only afford to do so because their earnings are increasing. So in effect these companies are reinvesting some of their earnings back into the business, but also distributing the excess to shareholders. As these companies grow their business, it becomes more valuable, which translates into higher stock prices over time. Companies like Johnson & Johnson (JNJ) or Procter & Gamble (PG) have managed to raise dividends for over 48 and 53 years respectively, while also delivering double digit total returns.

The problem with most novice dividend investors is that they simply focus on the dividend yield component. Thus they purchase the stocks with the highest dividend, which is seldom a good idea as those excessively high dividends are seldom sustainable and are cut or eliminated. Instead dividned investors should purchase stocks like Johnson & Johnson or Procter & Gamble that not only pay a rising dividend payment, but also deliver strong total returns.