From 2007 to 2018, Eleven years.
I never left the market. Individual stocks, index ETFs — I kept studying, kept investing. But the results were negligible. Barely anything to show for it.
Why? Looking back now, the reason was simple. I was investing for the wrong purpose.
Capital Gains Are a Bonus, Not a Salary
Investing for capital gains is like relying on a year-end bonus.
When it works, it’s great. Truly great. But it’s not regular. You never know when it’s coming. Some years it doesn’t come at all. And for anyone working a full-time job — unable to watch the market during trading hours — trying to time entries and exits is a losing game from the start.
Nobody pays their rent with a bonus. A bonus is nice to have, but you need a salary to live on.
Investing is the same. If FIRE is the goal, what replaces earned income must be cash flow that arrives regularly and predictably. Capital gains can’t do that job.
Dividends Are a Salary — But Only If They Grow
Once you commit to dividend investing, the next choice appears.
High-yield stocks: High dividend yield right now. Some pay 7–8%.
Dividend growth stocks: Lower yield today — around 3–4%. But dividends increase every year.
At first glance, high yield looks obviously better. You’re getting more right now. But there’s a critical trap.
If dividends don’t grow, inflation erodes your real purchasing power every year.
Say you receive $500 in dividends per month. If that number stays the same five years from now, what that $500 can actually buy will be less. At just 3% annual inflation, real value drops roughly 26% over ten years.
A salary can be negotiated upward. A high-yield dividend doesn’t raise itself.
The Numbers Make It Clear
Compare two scenarios.
| Scenario A High Yield |
Scenario B Dividend Growth |
|
|---|---|---|
| Initial Yield | 6% | 3% |
| Annual Dividend Growth | 0% | 10% |
| Dividends After 5 Years | Same | ×1.61 |
| Dividends After 10 Years | Same | ×2.59 |
At the start, Scenario A pays twice as much. But somewhere around year 7–8, Scenario B overtakes it. By year 10, it’s not even close.
That’s dividend growth compounding.
Compounding Works in Two Directions
My actual portfolio data makes this even clearer.
Current portfolio metrics:
- Current Dividend Yield: ~2.85% (after tax)
- Yield on Cost (YOC): ~3.5% (after tax)
YOC being higher than the current yield means the market price has risen above my average cost basis. The gap between the two numbers was created by price appreciation.
Dividend growth, I measured separately. Based on my current portfolio, the Organic Dividend Growth Rate (Organic DGR) from 2024 to 2025 came out to approximately 11%. Note: some monthly dividend ETFs listed during 2024 were excluded due to missing prior-year data, so there’s a margin of error. But the direction is clear.
Without adding a single dollar of new capital, the holdings themselves are increasing their dividends. Price appreciation and dividend growth are happening simultaneously.
High Yield Isn’t Bad
One thing to be clear about: this is not an argument against high-yield stocks.
If you’re approaching retirement and need cash flow now, increasing your allocation to high-yield assets makes sense. Strategies like covered call ETFs — which reduce volatility while boosting income — are legitimate tools.
My own portfolio keeps dividend growth stocks as the core, with covered call ETFs as satellites to supplement current cash flow.
The key is knowing what is the core and what is the supplement. When the core breaks down, the whole system breaks down.
It Always Comes Back to This Question
Before starting any dividend strategy, there’s one question that has to be answered first.
Do I need cash now — or do I need a larger cash flow ten years from now?
For most people pursuing FIRE, the answer is the latter. The goal is a cash flow system that grows on its own over time, even if it means receiving less today.
Dividend growth stocks are the right tool for that goal.
The next post covers how to evaluate dividend growth stocks — what criteria actually matter.
Read More Deeper
FIRE Strategy
Why I Pursue FIRE Through Dividend Growth Stocks
All content on this blog reflects my personal investment journey and is not financial advice. Investment decisions and their outcomes are solely your responsibility.