The global dividend bonanza could help you retire a millionaire!

The Motley Fool

We love dividend stocks at the Motley Fool, because we know they are one of the best ways to fund an early retirement. You can use the regular payouts as income to top up your state and workplace pensions, but the action does not stop there.

Dividend heroes

If you build up a portfolio of income-paying stocks and funds inside your tax-free ISA allowance and leave it for 10, 20 or 30 years, constantly reinvesting your dividends to generate further growth, it should eventually roll up into big money. The earlier you start the ball rolling, the better.

Income investing is particularly attractive to British investors because domestic stocks offer some of the highest yields in the world - averaging an impressive 3.79% on the FTSE 100 currently. Yet other countries are playing catch up, as global dividends soar to a new record high.

And that's a record!

They jumped at an annual rate of 12.9% to more than $497bn in the second quarter, according to today's Janus Henderson Global Dividend Index. That's half a trillion dollars in just three months. Headline payments rose in almost every part of the world, with France, Japan and the US all breaking records. Incredibly, global dividends have now risen by more than four-fifths since 2009. Cash has barely climbed at all.

This largesse has been driven by rising corporate profitability, Henderson says, and looks set to continue, with forecast underlying growth upgraded from 6% to 7.4%.

This is not a one-off either. As I have previously reported, dividends hit an all-time record high last year, with UK companies paying out £94.4bn in headline dividends, a rise of 10.5%

Income for growth

Despite this, many investors underrate the importance of dividend income, and the benefits of reinvesting those payouts for growth. It means you do not need global stock markets to climb every year to make money from investing. In fact, you actually benefit when markets dip, as you pick up more stock when re-investing your income.

There has been plenty of good news for domestic UK investors lately, with BP increasing its dividend for the first time in four years, and RBS making its first payouts since the financial crisis almost a decade ago.

Big money

There are some astonishing yields out there right now, for example, British Gas owner Centrica currently yields 8.22%, while Vodafone Group is paying 7.68% and SSE 7.49%. You have to approach with caution, however, as this level of income may not be sustainable in the longer run. Yet with another 20 FTSE 100 blue-chips paying 5% or more, you are spoilt for choice.

Today's research serves to highlight that there are plenty of income opportunities beyond these shores as well, especially in Europe.

It can feel riskier buying overseas company stocks, but you can still access this dividend growth story with a globally diversified fund. The following three investment trusts could all do a job for you on that front, offering yields of up to 3.68%. Or you could build your own portfolio of dividend income stocks, with help from the Motley Fool.

Buy-And-Hold Investing

Our top analysts have highlighted five shares in the FTSE 100 in our special free report "5 Shares To Retire On". To find out the names of the shares and the reasons behind their inclusion, simply click here to view it right away!

harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.