Dividend Growth vs. Distraction: A Reset for Long-Term Investors

📘Free Short Book: Dividend Growth, the Quiet Engine of Wealth 

If today’s market feels noisy, this short book lays out a calmer framework. 

Dividend Growth: The Quiet Engine of Wealth explains the same principles discussed in this episode—discipline, compounding, sustainable income growth, and staying focused when markets distract. 

It’s a quick read (about 90 minutes) and walks through how dividend growth works across full market cycles, including bull and bear markets. 

👉 Download the free eBook:
 growmydollar.com/dividend-growth-book 

Plus, join our market newsletter for more on dividend growth investing. 

________ 

Dividend growth investing can feel uncomfortable when a handful of growth stocks dominate headlines and performance. When value lags and momentum strategies seem unstoppable, it’s easy to wonder whether patience and discipline still make sense. 

To round out 2025, Greg steps back from the noise to revisit foundational principles of dividend growth investing and explain why they remain intact, even in today’s market. He walks through why distraction is one of the biggest risks investors face, how compounding quietly does the heavy lifting, and why tying income growth to long-term economic growth creates a durable framework that doesn’t depend on short-term cycles 

From the “Vitamin C” concept to classic compounding examples like the penny story and the Rule of 72, this episode reinforces how small, consistent decisions compound into meaningful income over time. Greg also revisits dividend growth targets, yield “sweet spots,” and the practical levers investors can pull to sustain income growth. The episode culminates in a real-world look at the model portfolio, which has been running since 2010. 

From all of us here at The Dividend Mailbox®, Happy Holidays!

Topics covered: 

00:00 – Introduction and why this is a good time to revisit first principles 

01:10 – Market distractions, information overload, and staying focused 

03:20 – Introducing the new book: Dividend Growth: The Quiet Engine of Wealth 

04:20 – The “Vitamin C” concept and daily discipline 

05:40 – The penny story and how compounding really works 

09:40 – The Rule of 72 and the long-term cost of short-term decisions 

11:10 – “The line”: GDP growth, earnings growth, and dividend growth 

14:30 – Targeting 7% dividend income growth 

16:30 – The 2–4% dividend yield sweet spot 

17:55 – Income growth levers: reinvesting, reallocating, and dividend increases 

20:4

Disclaimer: Past performance does not guarantee future results. This episode is for educational purposes only and is not investment advice.

If you enjoy the show, we'd greatly appreciate it if you subscribe and leave a review

RESOURCES:

Schedule a meeting with us -> Financial Planning & Portfolio Management

Getting into the weeds -> DCM Investment Reports & Models

Visit our website to learn more about our investment strategy and wealth management services.

Follow us on:
Instagram | Facebook | LinkedIn | X

Transcript

[00:00:11] Greg Denewiler: This is Greg Denewiler, and you are listening to another episode of the Dividend Mailbox, a monthly podcast about dividend growth. Our goal is to stuff your mailbox full of dividend checks. When they grow over time, a funny thing happens: you create wealth.

Welcome to Episode 54 of the Dividend Mailbox. Today, we’re going to go back and review some core principles that we have discussed in the past, but some of these haven’t been brought up for actually a few years or more since the market has really diverged. There’s value, there’s growth, and the whole dividend investing space.

Technology stocks have just been on fire. Everything else, to some degree, has lagged. It gets really easy to get distracted from what your core purpose is, and just because there are a handful of stocks that have done really well, that should not change anything as far as what you’re trying to achieve longer term and why you’re doing it.

So we thought it’d be a good idea. We’re going to go back today, look at four of our core principles, and revisit our case as to why nothing has changed. And if anything, it might even have gotten a little better. So with that, let’s look at why dividend growth investing still works.

One of the hardest things to do in investing, and really to some degree just in life in general, is that it’s very easy to get distracted in the investing world today. You know, you’re getting news summaries on your phone or your computer, or looking at the media, television. I mean, it’s coming from all sides.

It almost is like they try to leave you with the thought that you are a complete moron if you’re not in this because it’s doubling every other day. Well, it wears on you, and it seems almost ironic that in today’s environment of investing, it isn’t a lack of information that is probably your biggest enemy.

It’s too much of it. Everything seems like, “Oh, well, if I get this piece of news, if I make this trade, then I’m going to make money on that.” And basically it becomes a game of trying to react faster than somebody else. Well, Morgan Housel makes a great comment in his book, The Psychology of Money. If you want to get rich quickly, luck is the biggest factor.

If you want to get rich eventually, consistency is the biggest factor. Today, we’re talking about consistency. If you’re going to be on the dividend growth ship, then you need to stay your course because it still works.

So we have been working on a project, and it’s been out there for a while. We have actually finished a short book on dividend growth investing. The name of it is Dividend Growth: The Quiet Engine of Wealth. As we put it all together and finished it, reading through it all in one setting, I actually thought, “Gee whiz, man, I should probably do what this book says.” It kind of re-energized the whole process.

It is a completely different mindset than what really exists in today’s environment of investing, which leads to a concept that we have talked about, but it’s been a long time ago. It’s called the Vitamin C concept. The point of it is just simply, you have to take vitamin C every day. You can’t sit there, take seven pills on Sunday, and get the benefit of vitamin C because, from what I’ve been told, vitamin C will not store up in your body.

The point of that is it’s kind of similar to investing. Look at your core principles, look at what your end goals are, and then you almost, on some level, have to review it every day so that you don’t get thrown off track.

If you’re constantly looking at what’s got the most momentum, which story sounds the best, or thinking, “Okay, this doesn’t seem to be working so well right now, so it’s time to look for something else,” you’re probably not staying true, or maybe you don’t even know what you’re trying to achieve long term.

This really is about discipline, and it’s about staying the course. So to get started with the first principle, at the heart of our story is compounding. That’s what drives those small dividend checks to actually make a difference over time.

The problem is, and actually Chris Davis has made a comment—who’s on the board of Berkshire Hathaway and manages the Davis Funds—has said, you know, compounding is one of the hardest things to explain and really understand at some level.

So two stories that we will often bring up with clients. One of them is the penny story, and the other one is the Rule of 72. This has been many, many episodes ago. In fact, I think the second episode was the penny story. I’ve actually thought about maybe I should change it to the nickel story because pennies are out, but we’ll stick with pennies. Same concept.

So you have two choices. You can either take a penny that doubles every day for 31 days, or I’ll just give you $10 million right now. So which one would you rather have? Well, of course, it’s kind of a hint of what the answer is.

But you start with one penny, okay? The first double, you have two cents. Pretty easy. By the time you get out to day five, you have $1.60, a pretty small number. Day 10, still a small number, $51.20.

And this is the part that I think everybody misses, is that why even bother with this at this point because the numbers are so small? It’s not worth my time, and I’ll do it when it actually maybe makes a difference.

Well, the real lesson here is that by the time you get to day 20, the numbers have gotten to $54,428. For some people, that’s starting to turn into something. Other people, they make that in one day in their investments. But when you get to day 30, you have $5.3 million. On day 31, you’ve got $10.7 million.

Now, you may be thinking, “Okay, this is totally ridiculous. You can’t double your money every day for 31 days straight, or you can’t double your money every year for 31 years straight.” It’s not about doubling your money; it’s about the concept of consistent compounding.

The point is, when you’re out on day five, day 10, the numbers are still extremely small, but it’s all about mindset. It’s about building the discipline, having the confidence that what you do is working.

Because what does happen as you get farther into the game, the numbers are no longer, you know, two pennies or $500. The numbers start getting into hundreds of thousands of dollars. Well, when the numbers get bigger and you have volatility and you start making more money, you have to be committed.

And that’s the whole idea of being committed on day one, not waiting until day 20 when the numbers are bigger and that’s when I’ll start. And just think about this: it really is the same effort to double one penny as it is to double $5.3 million. Compounding is the same whether you’re compounding at 1% or 100%.

Along the same lines, an interesting rule that you should become familiar with is the Rule of 72. If you divide 72 by your interest rate, it gives you the approximate time it will take to double your money.

So if you’ve listened to these podcasts at all, we’re really big on a target of 7% a year growth on our income, which doubles it every 10 years.

If you’re 20 years old, then let’s just say you earn at least 7% a year on your money. If you’re thinking about buying that car and you want that flashy vehicle and you want to spend 50 grand for it, or you could go out and buy something used for 25, how much did that extra $25,000 car cost you?

Twenty-five thousand in 10 years is $50,000, $100,000, $200,000, $400,000, $800,000 by the time you turn 70 years old. So was that extra new flashy car really worth $800,000? There’s the power of compounding.

You know, for some people, okay, I’m not telling you that you have to live like a hermit, but something to think about.

So of course, stories are great. You know, looking at the penny story and seeing how a penny can actually become worth $10 million. Theory’s great, hearing stories about people that have had some huge successes. It’s all great.

But the real key is, okay, how do I take some of these concepts and actually apply it?

So one of the things we want to do now is start to look at how we approach this, which leads us to our second principle and to the whole foundation of dividend growth.

In the past, we’ve mentioned the line, and for some of you that have been long-term listeners, you may remember the line. It’s good to review it, and we’re seeing the numbers play out right now.

The economy is doing okay. The projections right now into next year are that they’re looking for fairly good growth. Well, we all know economists are wrong at least 50% of the time, but right now it appears that the economy may have a pretty good year next year.

Where this goes back to is, in the last 100 years, the economy has grown, if you include inflation, at about 6% a year. When we observed this and kind of put these numbers together, it became clear you really want to try to hitch your wagon to GDP growth because, lo and behold, that also drives earnings growth.

If you look at earnings growth for the last century, it’s been more volatile, but it ends up growing by about that same 6%. It’s an easy concept. Corporate profits, corporate earnings are a result of GDP growth. It’s the economy. Not hard to draw those two dots together, but it’s not a straight line.

So our whole concept of the line is eventually everything revolves around long-term GDP growth. That is the core of our whole strategy because when you get out to dividends, they basically grow by the same rate long term as GDP growth does.

GDP growth, 6% a year. Long-term earnings growth, 6% a year. Long-term dividends, 6% a year. Long term, they are all interconnected. Or I should say earnings are a result of GDP growth. Dividends are a result of earnings growth.

Now, there are a few down years, 2008 recessions, but dividends recover fairly fast. They usually never get hit near as hard as earnings. So it is a little bit more stable anchor that you’re kind of tying yourself to.

If you believe in one of Warren Buffett’s favorite sayings, you know, don’t bet against the U.S. economy. Under our approach long term, you just have to hitch your wagon to that 6% growth line.

So we came up with this saying: get on the line and stay on the line.

Which leads us to the third principle from a standpoint of dividend growth. We’ve set our hurdle rate at 7% a year, 1% higher than the S&P 500 dividend growth rate long term. We think that is attainable because at least 25% of the S&P 500 has either a very small dividend or they don’t pay dividends at all.

So if we focus on the growth part, then we think it’s a very attainable goal. And in the end, it’s a simple math exercise. If your income doubles every decade and your portfolio yield stays the same, theoretically, if valuations stay the same—which never happens exactly—but that means that your portfolio value will double in 10 years.

Of course, there can be a big deviation when you look at valuations, and that’s a part of what’s happened right now. Growth has gotten way ahead. Is it going to stay ahead? I don’t know.

But see, we’re not too concerned about that. We are just focusing on just keep trying to double our income. That helps us keep away from all the seduction of that.

But if you double $100,000 every decade for four decades, you now have $800,000, everything else being equal.

If the dividend yield starts at 3%, that’s $3,000 the first year, and it doubles every decade for four decades, then lo and behold, you have $24,000 at the end of four decades. You just put another zero behind it, two zeros behind it, and you’ve got a real income that you can live off of and maintain a lifestyle, in my opinion.

That’s a whole lot better thing to bet on than wondering if Nvidia is going to triple in the next two decades or less.

So then the final principle: how much income or yield is a good target in order to get that growth sustainably? We’ve talked about our sweet spot in the past. It’s in the 2% to 4% range.

And the reason why we pick that is if we have a target, a long-term target of growing our income by 7% a year, we have to have earnings growth. And in our opinion, our quote sweet spot of, let’s just say, 3% dividend yield leaves us with room to get an attractive total return and for companies to grow their earnings enough.

They can continue to reinvest in the business or find other opportunities. They tend to be companies that are a little bit more shareholder friendly. They’re willing to pay a little bit more of a dividend, but they also have enough to retain and continue to try to grow dividends and earnings in the end.

What drives the bus on dividend growth? It’s not the dividend. It’s earnings. If you don’t have earnings growth, you’re not going to have long-term sustainable dividend growth. It’s pretty simple, but I think that’s a concept that a lot of people miss.

Now, finding companies that can successfully do that long term is far from easy, but the goal is extremely easy.

So with that, the great thing about when you have total return and you have dividend growth, if you’re trying to live off of your investments over time, that starts to leave you with options.

Three percent over three years, with just a little bit of simple compounding, you’ve gotten 10% of your portfolio value and income. If you have a $1 million portfolio, you’ve picked up $100,000 that you can reinvest. You don’t have to sell anything if you don’t want to.

And in addition, if the market goes down, you’ve got cash flow coming in. If the market’s down 20%, you don’t have to potentially sell anything, or much less than if you’re just purely living off the value of the portfolio and what it’s doing from month to month.

We’ve talked about levers that we can pull for sustainable dividend growth. The first one is a growing dividend. That’s maybe the simplest lever. Two is reinvesting those dividends, and the third one is just reallocating capital and going from maybe a lower income to a higher income because we’ve had a nice profit and we’re willing to reallocate assets.

If you’ve got something that doubles, and let’s just say the yield goes from 3% down to 1.5%, you’re going to sell it to somebody who’s going to get 1.5%. You take that cash, turn around, and buy a new investment that pays 3%. You just doubled your income on that part of the portfolio. That becomes a factor down the road in really being able to help sustain your dividend growth.

So just in thinking through this whole concept, you know, it all centers around sustainable dividend growth. Our whole point is to try to let compounding do the heavy lifting.

Then we want to just steer down the middle of the road by hitching our wagon to the growing economy, which is the line: GDP, earnings, and dividend growth.

If that continues to grow at 6% a year, which is what it’s done for the last century, then our target of 7% is a relatively attainable goal that gives compounding a chance to really grow these numbers over time.

You just keep focusing on ways that I can keep that going through reallocation, reinvestment, just growth.

And then with our sweet spot of 2% to 4%, that means double or triple the income you’ve got from the index. You start to worry less about what the market’s doing, and you start to pay attention more to, “My income’s growing in here. I don’t really care what happens day to day.”

If you can get to that point, you’re probably going to be a successful long-term investor. The hard part is maintaining the discipline.

So this whole idea started with what we call the model portfolio. We are very fortunate to actually have a model portfolio that is live, that has been running since August of 2010. This is not hypothetical. It’s been a running strategy now for going on 15 years.

This strategy started after the 2008–2009 recession, where it got extremely challenging. Market down 50%. Most assets correlated to one, meaning that pretty much everything was hit. It was a real test of, have things changed? Is it different this time?

A lot of people were saying it was the new normal, it was going to be slow growth. There was talk about a double dip in a recession.

So the idea was, look, let’s buy some dividend yield where at least we’ve got some income coming out and we don’t have to depend totally on price.

We put together 10 stocks, same amount of money in each one, and there the portfolio began. It is a real live portfolio. I will tell you, there’s only one client that owns it. Everybody else has different things in their account.

We do do other things. We do look for other ways to create return. But this one account, it’s the only thing that’s been in there right now.

There are 15 different stocks in it. There’s about 15% cash in it from dividend accumulation. There are no indexes in it. There are no mutual funds. It’s just a pure dividend growth strategy.

We have a dual mandate. It’s very simple: grow the income, and we want total return. If we have sustainable income growth, we believe that we’re going to get total return also because we invest in companies that have some growth factor in them.

One of the problems is, on a short-term basis, valuations can drive the bus. But as we watch this portfolio perform over time, since 2011 up through 2025, our annualized dividend growth compound rate has been almost 10% a year.

If you look at the S&P 500, it has been about 8.5%. We are beating it by a little bit, but the S&P 500 dividend yield is only 1.25%.

Right now, our yield on our portfolio is about 3.5%, and the beautiful thing is what has happened: it’s grown more than three times from where it was just 14 years ago.

Your simple Rule of 72 basically means the income has doubled twice. Those are numbers that you can live off of. That’s the point of this whole exercise.

Well, we’ve got a couple weeks left, and the income is up 10.2% for the year. I would wager that we’re going to be within $2 or $3 of that 10.2% because we only have three payments left. Everything else is paid for the year, and those three payments have been declared.

Now, the dividend of the S&P 500, we don’t know yet, but what it can do is give you a comparison, and that is the first three quarters of 2024 to the first three quarters of 2025. The S&P 500 dividend is up 6.8%, so it’s probably going to be right around that range.

You know, from a pure price standpoint, value has struggled this year. We are now lagging the S&P 500, but we have 15% of the portfolio in cash, so we have some flexibility.

It’s a long-term game. Our premise is pretty simple. If you continue to grow your income, at market levels that are higher sooner or later, we’re probably going to revert to the mean, or at least close to it, as to how this portfolio is tracking with the S&P 500.

As we conclude, hopefully this gave you a little bit of vitamin C in a market that, for this year frankly, was a challenge for dividend investors or even value investors. But this is a reminder of why you do what you do and hopefully kind of recenters you.

It’s very easy to totally get distracted, and sustainability is really a pretty high hurdle. It seems like maybe it’s easy to just get an extra 1%, but trust me, it’s very hard to be successful at executing it.

A big goal of this book is just to help kind of reinforce the idea, and more importantly, why it’s worth considering and really hanging in there as investment styles ebb and flow.

The good news is our short book does go into more detail of exactly how we try to apply this. There’s enough there to satisfy people that are looking for a little bit more meat, but it’s also, I think, general enough that it should be a benefit to everybody.

It is available, so if you want to get a free copy of the eBook, there is a link in the show notes, or go to growmydollar.com/dividendgrowthbook.

With that, if you take anything away from today, hopefully it’s that dividend growth is a long-term commitment, and it’s about being able to stay focused and disciplined. Compounding continues to do the heavy lifting for us. If you can stay true to that principle, that’s where the wealth comes from.

If you enjoyed today’s podcast, please leave us a review and subscribe. If you would like more information regarding dividend growth or our investment strategy, please visit growmydollar.com. There you’ll find previous episodes and also our monthly newsletter.

If you have any questions or anything to add to today’s episode, please email ethan@growmydollar.com

Past performance does not guarantee future results. Every investor should consider whether an investment strategy is right for them and all the risk involved. Stocks, including dividend stocks, are volatile and can lose money. Denewiler Capital Management may or may not have positions in the publicly traded companies mentioned herein.