Secular Growth
Why it matters
Hello fellow Dividenders!
Solid dividends it's the cornerstone of our investment strategy, giving us a reliable stream of income that helps us reach our financial goals. But I'm here to tell you there's something else, another ingredient if you will, that can really turbocharge your dividend portfolio's performance in the long run. And that is secular growth.
What on Earth is Secular Growth? 🤷♀️
Secular growth isn't just your average, run-of-the-mill sort of growth. We're not talking about companies riding high on a short-lived economic boom or some cyclical upturn. No, secular growth describes those fundamental shifts in the world, driven by long-term, unstoppable trends. Think of it like this:
The unstoppable rise of online shopping: Amazon didn't just pop up overnight, did they? They cleverly capitalised on a massive, decades-long shift in how people shop.
Then there's the fact that the global population is getting older. Healthcare companies, particularly those focusing on care for the elderly, are set to benefit from this enormous demographic trend.
And we can't forget the move towards renewable energy. The world's going green, and that means big opportunities for companies involved in solar power, wind farms, and battery tech.
Waste management is also another sector that offers secular growth, driven by factors like increasing global waste generation, growing environmental awareness, stricter regulations, and a shift towards circular economy practices, creating a consistent and predictable market expansion over time, not tied to short-term economic cycles.
Artificial Intelligence (AI) and automation is another one. It's changing everything, from how factories are run to how we get help from companies - AI is everywhere.
And finally, cloud computing. More and more businesses are using cloud services to store their information, use software, and process data.
These are just a few examples, but you get the gist. The main takeaway is that secular trends are powerful, long-lasting forces that reshape entire industries and create a whole host of new opportunities.
Why Should Us Dividend Investors Give a Monkey's About Secular Growth? 💰
You might be thinking, "That's all well and good for those growth investors, but I'm only here for the dividends!" Well, here's why secular growth matters to us dividend lovers:
First off, it's all about dividend sustainability. Companies operating in these secular growth industries are much more likely to have the financial muscle to not only sustain but also grow their dividends over time. They've got growing revenue streams and expanding markets, which gives them a nice cushion to weather any economic storms and keep those lovely dividend cheques coming.
Secondly, there's the potential for dividend growth. Secular growth often leads to faster earnings growth. And as we all know, earnings growth is what drives dividend growth. Companies in these dynamic sectors can often raise their dividends at a faster pace than those in slower-growing industries.
Thirdly, while dividends are great, we shouldn't turn our noses up at capital appreciation. Secular growth companies have the potential to generate some serious price gains over the long haul, which boosts your overall portfolio returns. A healthy mix of dividend income and capital appreciation is a very powerful combination indeed.
And finally, it's about future-proofing your portfolio. By investing in companies that are aligned with these secular trends, you're essentially future-proofing your investments. You're positioning yourself to benefit from the industries and technologies that will shape the world in the decades ahead.
How to Find These Secular Growth Opportunities (and Still Get Your Dividends): 🕵️
Start by doing some digging into the major secular trends that are transforming our world. Read industry reports, follow reputable financial news sources, and look for areas where you see significant long-term potential. The list I mentioned earlier is a good starting point.
We dividend investors tend to prefer companies with a proven track record. While startups can be exciting, we often want to see established businesses that are already generating consistent profits and, crucially, have a history of paying dividends. Look beyond the current yield. Seek out companies that have consistently raised their dividends over time, preferably at a rate that's beating inflation. You can usually find this info on most financial websites.
👇You can read my resources page below.👇
Make sure the company's dividend payout ratio is sustainable. A high payout ratio could mean the dividend is at risk if earnings take a dip. Generally, a payout ratio below 60% is considered healthy, but this can vary depending on the industry.
Conclusion 🎯
Secular growth might seem like something for those high-flying growth investors, but it's a powerful force that we dividend investors really shouldn't ignore. By identifying companies that are not only riding these long-term trends but also have a solid track record of paying dividends, we can enhance our income, boost our total returns, and set up our portfolios for long-term success.
So, let's look beyond the current yield and embrace the exciting opportunities that secular growth offers. It's a way to add some real oomph to our dividend investing strategy and potentially achieve even better financial rewards.
Thanks for reading,
The Dividend Edge
