How do I invest in dividend stocks to target long-term wealth?

While short-term gains may be attractive, I believe investing in dividend stocks is a smart way to do so over the long term. It is often tempting to withdraw these dividends once the payment is received, but reinvesting them will increase earnings exponentially.

But it is becoming increasingly difficult to predict how a company will perform over a longer period of time. Therefore, when aiming for long-term wealth, it is best to choose stocks that are likely to continue performing well for decades to come.

Additionally, investors in the United Kingdom are Stocks and shares ISA. This can help minimize tax liabilities, with a tax-free contribution limit of £20k per year.

Please note that tax treatment depends on each customer’s individual circumstances and may change in the future. The content in this article is for informational purposes only. It is not intended to be, and does not constitute, any tax advice. Readers are responsible for conducting their own due diligence and seeking professional advice before making any investment decisions.

Planning

It is best practice to develop an investment strategy from the very beginning. This covers how much to invest, the frequency of contributions (monthly, annually), the number of shares to be included, and how long to hold the investment.

When I started I made a lump sum investment of £5k and then made additional contributions of £200 each month. Naturally, these amounts will depend on the person’s financial situation.

I then identified at least 10 stocks spread across several sectors, including defensive, growth, and dividend stocks, as well as one or two funds.

I then plan to keep the investment until retirement or about 30 years.

stock picking

There are three main things I look for in a company:

• Well-established companies: must have a long history of sound management and steady growth (50 years+)

• In-demand industry: Must operate in an industry that promises consistent demand for an indefinite future (think retail, pharmaceuticals)

• Dividend history: Must have a long, proven track record of increasing dividends (more than 20 years)

A dividend powerhouse

One of the stocks I chose that fits the criteria above belongs to a British utility company National Grill (LSE: NG.). The company started operating in its current form in 1990 and London Stock Exchange In 1995.

However, the business of managing the UK’s electricity and gas grid has been around since the 1950s, so I’d say it’s well-established.

I can also say that the demand for electricity and gas will continue for an indefinite period. It has a stable and reliable performance with monopoly and regulated earnings in the industry.

Which brings me to dividend history.

Although the increases are not dramatic (an average of 3.6% per year), they are consistent. There has not been a single cut or reduction in dividends in over 20 years; rose from 16.3 pence per share to 54.1 pence.

The share price is equally stable, growing at an annualized rate of 4.39% over the last 20 years.

But he is not immune to risk. Infrastructure improvements, especially those aimed at achieving renewable energy targets, threaten the company’s profits. In May, the price fell 18% after it announced a 7-for-24 rights issue to raise £7bn to support renewable energy.

Although these investments are necessary, they may cause price declines in the short term. The continued need to support renewable energy initiatives could cause the company further challenges going forward.

Overall, I think this should form the basis of any dividend portfolio aimed at securing long-term wealth. I plan to continue investing in the company for the indefinite future.