Companies that have the ability to increase their dividends annually will obviously be increasing my annual income. If that increase is greater than the rate of inflation then my income will increase faster than inflation and my purchasing power will continue to increase over time. Investing in these types of dividend growth stocks is critical to my investment strategy and to my ability to eventually retire with the confidence that my earnings and lifestyle will not deteriorate as I age. And isn't that the purpose of investing in the first place?
The place where I begin to look for dividend growth stocks is in the list of Dividend Aristocrats. This list contains Blue Chip companies listed on the S&P 500 index with large market capitalizations that have paid and increased their dividend annually for a minimum of at least 25 consecutive years. Everyone of the companies are excellent companies to have in my portfolio but they are not all priced at a level that is prudent to accumulate. Care should always be taken when evaluating the possibility of accumulation.
By reinvesting rather than just spending these dividends during my working years, I will accelerate the compounding effects of the dividends which will quickly put me in a position where the dividends will become large enough that they will provide me with sufficient income that I can discontinue my working career and live off the ever increasing dividends.
My only regret in life and in my investment strategy is that I didn't figure this all out when I was younger. Perhaps my kids will benefit from this knowledge long before I did. Good luck kids!