Why I Expect to Receive More in Dividends in 2024 Than in 2023

As a dividend growth-focused investor, I actively look to buy shares in companies that have three features:

• They currently pay dividends.
• They’ve recently raised those dividends.
• They look capable of continuing to boost their payments.

While dividends are never guaranteed, that strategy can lead to real opportunities for compound income growth.

Thanks to a great ending to 2023 from a dividend perspective, I expect to receive more dividends in 2024 than in 2023. Three key factors are working together to improve the chances of that becoming a reality.

Person leaping from 2023 to 2024.

No. 1: Dividend growth

2024 hasn’t yet started, but some companies are already projecting bigger payouts for 2024 than they gave investors in 2023. Canadian energy pipeline giant Enbridge (NYSE: ENB), for instance, declared a 3.1% increase in its quarterly dividend that’s payable in March. That increase marks 29 consecutive years of rising payouts, which is a testament to the company’s stable cash flow.

While there are open questions about the long-term future of natural gas and oil as energy sources, those fuels should remain in demand over the next few decades. The U.S. Energy Information Administration’s outlook projects roughly stable demand for both fuel types through 2050.

Stable demand for decades is a perfect environment for slow and steady dividend growth from an already-established pipeline giant like Enbridge because it can continue to leverage its existing installed capacity. If it’s not investing much in expansion, it can improve its cash flow (and ability to pay dividends) by paying down debt over time.

In addition to planned payout increases for 2024, there’s also the carryforward effect for companies that increased their dividends in mid-2023. As long as they can maintain their new, higher rates in 2024, more dividends will be paid in 2024 than in 2023.

For instance, Microsoft (NASDAQ: MSFT) paid a $0.68 per-share dividend each quarter for the first three quarters of 2023, then increased it to $0.75 for the fourth quarter. As long as that $0.75 rate is maintained throughout 2024, its total dividend of $3 per share for 2024 will be larger than the $2.79 it paid in 2023.

Thanks to Microsoft’s leading position in artificial intelligence, along with its already strong operating systems and office productivity software lines, maintaining that dividend should be feasible. Its dividend only consumes around 27% of the company’s earnings. Microsoft might even continue increasing that payment in 2024, thanks to its modest payout ratio and anticipated solid earnings growth.

No. 2: Reinvesting dividends in more dividend growth stocks

Back in August, I accumulated around $12,000 in cash — mostly from dividends from other investments — that I decided to invest in Fifth Third Bancorp (NASDAQ: FITB). Shortly after I made that purchase, Fifth Third Bancorp decided to boost its quarterly dividend to $0.35 per share per quarter, up from its previous $0.33 level.

With that boost, the 486 shares I bought are now projected to pay $680.40 in dividends in my first year of ownership. These dividends were generated by an investment funded by previous dividends — and a great example of how compounding can come to life.

Of course, banks are tough to value, and the Silicon Valley Bank collapse earlier this year spooked investors when it came to smaller banks. That’s a key reason I was able to buy Fifth Third Bancorp’s shares at what looked like a reasonable value.

On top of that value price, Fifth Third Bancorp was paying interest rates on CDs that were below what the overall market offered, and that attracted me. Banks advertise higher interest rates as a way to attract deposits. The fact that Fifth Third Bancorp didn’t feel the need to compete on yield suggested to me that it felt comfortable with its capital structure and balance-sheet strength.

No. 3: Investing new money

Beginning Jan. 1, 2024, new IRA contribution limits open up for the new year. For 2024, the standard limit for IRAs is $7,000 per person under age 50 or $8,000 for those ages 50 and up.

I plan to put my 2024 IRA contributions toward companies that pay dividends, have increased their dividends, and look capable of continuing to increase those payments. That adds new capital to the amount being put toward that strategy.

Get started now

Like a snowball rolling down a mountain, dividend compounding starts out small but has the potential to grow pretty large over time. To get to that point, though, you need to take those small initial steps by investing in companies with that potential.

Make today the day you start seeking out companies that could serve as the beginning of your own personal compounding machine. If they’re able to deliver on those prospects over time, you could find yourself waking up some day very glad you took those steps.

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Chuck Saletta has positions in Enbridge, Fifth Third Bancorp, and Microsoft and has the following options: long January 2025 $37.50 calls on Enbridge, short January 2025 $30 puts on Enbridge, short January 2025 $37.50 puts on Enbridge, and short January 2025 $40 calls on Enbridge. The Motley Fool has positions in and recommends Enbridge and Microsoft. The Motley Fool has a disclosure policy.