What Should a Dividend Growth Investor Buy in 2024?


What should a dividend growth investor buy in 2024? What a fascinating situation we are in; still plagued with high inflation—although it slowed down a bit in late 2023, it went back up in the U.S. and possibly Canada in December—and with high-interest rates, yet we might not end up in a recession, perhaps a soft landing. Makes it difficult to choose stocks…

Labor shortages will continue as we finally hit the wall with our aging population. More and more people retire while not enough young folks seek jobs to replace them. The search for qualified workers will support a form of inflation as unemployment rates should remain low despite their recent modest increases.

Lightbulb drawn on sticky note pinned to a board Rising salaries and low unemployment rates force companies to become more productive and efficient. When faced with rising costs, companies don’t sit around and complain. They go back to the drawing board and find ways to become more efficient. In the next two years, the world will belong to those who focus on productivity. This should be the cradle of the next bull run.

What we fear

The obvious! We fear a market crash that will take years to recover from. It wasn’t fun in 2022, but we somewhat kept the hope that the FED would finally stop increasing interest rates. It did in 2023, but we can’t rejoice just yet.

While interest rate hikes have stopped, and there is talk of reduction sometime in 2024, the current higher rates will affect both consumers and companies who need to borrow, or refinance debt, for a while still. Not to mention recent disruptions to shipping routes through the Red Sea and Suez canal raising the possibility of increasing inflation.

Therefore, the sequel to this movie may very well look like what we endured in 2008,  when it took about four years to fully recover from the crash. Investors who were in their accumulation phase were smiling as they got the deal of the decade. But for retirees, it was another story.

Cute pink piggie bank on white backgroundBased on this experience, I suggest retirees keep a cash reserve of 18 months to 2 years’ worth of your retirement budget. You can then withdraw from your cash reserve without being too nervous about the stock market. Your dividends should be deposited in that cash reserve. Depending on the pace of your withdrawals and the yield generated by your portfolio, this strategy will extend the lifespan of your cash reserve up to 3-4 years (maybe more!). The cash reserve helps you sleep well at night on top of providing you with extra flexibility.

The investment strategy for 2024

Don’t overhaul your investing strategy and start over. Adjust your portfolio to ensure you are well-invested and poised for what’s coming. A potential long bear market affects investors who are invested and those with cash on the side. Here’s the playbook.

Invested investors (like me!):

  1. Review your portfolio; ensure it’s well-diversified across several sectors
  2. Identify weaker-rated stocks; re-examine if you still want to hold them
  3. Trim overweight positions
  4. Optimize your holdings with better stocks (strong metrics and growth potential)
  5. Build a cash reserve if you are retired and depend on your portfolio to generate income

Cash on the side investors (sitting, waiting, wishing…)

You could wait for years and never get today’s price again. Instead:

  1. Build a buy list right now
  2. Invest 33% of your money now
  3. Wait for a quarter, review earnings, and invest an additional 33%
  4. Rinse & repeat for another quarter to fully invest your money over the next 6 to 9 months.

The goal of this strategy is making sure your portfolio thrives no matter if you invest right before a market crash, or just as we embark another 5-year bull market.

  • If you invest 33% just days before a crash starts, remember that major market crashes are intense, but the downward trend doesn’t last very long. Therefore, three and six months down the line, you’ll have bought during the dip, averaging down your position with cheaper prices.
  • Alternatively, if you invest 33% just the market begins a 5-year bull run, you’ll slowly build a profit cushion with an average price below the market.

How to invest in 2024 series visual.A full podcast series on How to Invest 2024 is available to you now! Get your plan for the year ready!


Start with the dividend triangle

I first screen stocks by using a simple but greatly effective tool called the “dividend triangle”. I look for leaders in their markets with strong growth vectors, i.e., companies with the ability to increase their sales and also show profit growth. Finally, I look for  companies that are that will increase their dividend year after year. This is why the first three metrics in my filter, representing the dividend triangle, are:

  • Revenue growth (5 year trend)
  • Earnings per share (EPS) growth (5 year trend)
  • Dividend growth (5 year trend)

If you are concerned about market uncertainties, your best bet is to rely on companies with a strong dividend triangle. They won’t let you down during the next recession and will likely recover faster upon a market correction. I’m not the only one saying this, even Vanguard established that dividend growers outperform the market with less volatility.

3 Metrics won’t be enough for 2024

Using the dividend triangle gives you a good start, but that’s far from being enough. First, 5-year metrics only tell you what already happened. This is not a guarantee for the future. To have a better idea of where to invest in 2024, I look at the 5-year trend for other metrics in addition to the dividend triangle.

Look at 5-year trend for following metrics:

  • Dividend triangle trend (how revenue, EPS and dividend increase year per year)
  • Payout and cash payout ratios. Learn more here.
  • Long-term debt and debt-to-equity ratio. Learn more here.
  • Cash flow from operations. Learn more here.
  • Price to earnings ratio (PE)

Any jump or sudden drop in the metrics needs to be explained. Studying trends tells me which quarterly earnings report to dig through to find answers to my questions. Once this is done, I’m ready to write my investment thesis.

Top stocks for 2024

Now, let’s look at some of my top picks for 2024. Enter your email address here to learn about six of my favorite stocks for 2024:

Many factors will have an influence on the market this year. However, the best way to invest remains the same: having a straightforward strategy!

The post What Should a Dividend Growth Investor Buy in 2024? appeared first on The Dividend Guy Blog.

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