8 Rules of Dividend Investing 2025

The 8 Rules of Dividend Investing help investors determine what dividend stocks to buy and sell for rising portfolio income over time. This can assist you in identifying the right securities to build or expand your retirement portfolio, aiming for increasing passive income. All of The 8 Rules are supported by academic research and ‘common sense’ principles from some of the world’s greatest investors. In this post I'll outline the 8 rules all Investors focused on Dividends need to consider.

INVESTORS GUIDE

Market Chat

1/5/20253 min read

woman in white shirt sitting beside man in red crew neck t-shirt

Rule # 1 – The Quality Rule

Invest in high quality businesses that have a proven long-term record of stability, growth, and profitability. There is no reason to own a mediocre business when you can own a high quality business.

Rule # 2 – The Bargain Rule

Invest in businesses that pay you the most dividends per dollar you invest. All things being equal, the higher the dividend yield, the better. Additionally, only invest in stocks trading below their historical average valuation multiple to avoid investing in overpriced securities.

Rule # 3 – The Safety Rule

If a business is paying out all its income as dividends, it has no margin of safety. When a business downturn occurs, the dividend must be reduced. It therefore makes sense to invest in businesses that are not paying out nearly all of their earnings as dividends.

Rule # 4 – The Growth Rule

Invest in businesses that have a history of solid growth (like the Dividend Kings). If a business has maintained a high growth rate for several years, they are likely to continue to do so. The more a business grows, the more profitable your investment will become. Dividends cannot grow over the long run without rising earnings.

Rule # 5 – The Peace of Mind Rule

Look for businesses that people invest in during recessions and times of panic. These businesses will be more likely to continue paying rising dividends during a recession. We would also expect these securities to, in general, have lower stock price standard deviations.

Rule # 6 – The Overpriced Rule

If you are offered $500,000 for a $250,000 house, you take the money. It is the same with a stock. If you can sell a stock for much more than it is worth, you should. Take the money and reinvest it into businesses that pay higher dividends.

Rule # 7 – The Survival of the Fittest Rule

If a stock you own reduces its dividend, it is paying you less over time instead of more. This is the opposite of what should happen. You must admit the business has lost its competitive advantage and reinvest the proceeds of the sale into a more stable business.

Rule # 8 – The Portfolio Management Rule

No one is right all the time. Spreading your investments over multiple stocks reduces the impact of being wrong on any one stock.

Conclusion

The 8 Rules of Dividend Investing guide investors in selecting which dividend stocks to buy or sell to achieve growing portfolio income over time.

These principles can help you identify the ideal securities to build or enhance your retirement portfolio, ensuring a steady rise in passive income.

Disclosure

The information provided on this website is for general informational purposes only and does not constitute financial advice, investment advice, trading advice, or any other type of advice. All content, materials, and resources made available are solely for educational purposes and should not be relied upon for making financial decisions. Read full disclaimer here.

Related Books you may enjoy

It's time to learn how to create safe income streams in the stock market. Dividend investing is something. Click here for faster shipping