How dividend growth, reinvesting and new money make income rise: the maths of growth rates, a plan, an example dividend-growth mix and the traps to avoid.
Growing income is a different goal from maximum income. Instead of asking how much does it pay now?, you ask how much will it pay in ten years? The three engines are dividend raises, reinvested dividends and new money. This guide shows the maths of each and how to pick holdings with growth in mind.
Growth compounds. This table shows $1,000 a year of dividend income if companies raise their payments at a steady rate. It counts raises only: no reinvesting and no new money.
| Dividend growth per year | After 5 years | After 10 years | After 20 years |
|---|---|---|---|
| 3% | $1,159 | $1,344 | $1,806 |
| 5% | $1,276 | $1,629 | $2,653 |
| 8% | $1,469 | $2,159 | $4,661 |
Real raises are uneven and some companies cut. Reinvesting and adding money push the income higher still. Test your own case in the dividend growth calculator.
Income grows when companies raise payments and when you own more shares. Know which one you are relying on.
A lower starting yield with fast growth can beat a high yield that never moves. Decide the mix you want.
Companies with years of increases have shown they value the payment. A streak is a clue, not a promise.
Compare the five-year growth rate with the payout ratio. Fast growth on a payout ratio near 100% cannot last.
Reinvesting buys more shares, which pay more next time. Over years this compounds on top of the raises.
Track your income year over year and your yield on cost, not just the share price.
Lower income now, more growth later. The yields are assumed round numbers, not market data.
| Holding | Weight | Assumed yield | Amount |
|---|---|---|---|
| Dividend growth stocksCompanies that raise their dividend steadily | 45% | 1.8% | $22,500 |
| Broad US stock ETFThe whole market in one fund | 35% | 1.3% | $17,500 |
| International developed-markets ETFCompanies outside the US | 20% | 2.8% | $10,000 |
A teaching example, not advice. Starting income is modest by design; the plan depends on companies continuing to raise their dividends.
Open this mix in the calculator →All information and tools on this website are provided for informational purposes only. The calculations, examples, and projections are simplified estimates and may not reflect real-world investment results.
Nothing on this website should be interpreted as financial, investment, tax, or legal advice. You are solely responsible for your investment decisions and any outcomes resulting from them.
Past performance and projected returns do not guarantee future results. Always conduct your own research and consult a qualified financial advisor before making investment decisions.