Fewer are familiar with the eighth wonder: Einstein’s observation of compound interest. Said Einstein (putatively), “Compound interest is the eighth wonder of the world. He who understands it earns it . . . he who doesn’t . . . pays it.”
An even more impressive strategy exists for compounding wealth. The strategy is one Einstein unlikely knew, and it’s one underappreciated today.
I call it the 9th Wonder of investing. It’s my term for the wonders of dividend-growth investing.
The 9th Wonder investment strategy invariably wins the wealth-creation race. It certainly wins the marathon; it frequently wins the sprint.
I lean on two High Yield Wealth recommendations to prove my point.
Microsoft Corp. (NASDAQ: MSFT) shares are up 34% year to date. 2017 has been pleasantly marked by a series of all-time highs. The latest all-time high was hit earlier this week.
Microsoft has been pleasantly marked by a series of new highs — first 52-week, and then all-time — since my initial October 2013 recommendation. For this, I thank the dividend, which has annually posted new highs.
As the dividend goes, so goes the share price. This is the reason I call dividend-growth investing the 9th Wonder. It’s simple, predictable, and, oh so powerful.
Microsoft has increased its dividend annually since 2004. Since my initial Microsoft recommendation four years ago, share-price appreciation and dividends have combined to produce a 167% total return.
Opportune timing accelerates the process.
When I first recommended Microsoft, its share price was depressed. Management lost its way seeking growth. A new management team was formed and growth was found in the clouds.
Microsoft reports that its commercial cloud business now has an annualized run rate of $15.2 billion. Microsoft’s commercial cloud products are on track to hit $20 billion in annual revenue by the first quarter of 2018.
I see more growth ahead — in the business and in wealth creation.
On the latter, Microsoft’s latest dividend included another dividend increase. The quarterly dividend was lifted to $0.42 per share. The new, improved dividend lifted our cost-basis dividend yield — based on the 2013 purchase price — to 5.1% compared to 2% for the market-price yield.
Dividend growth frequently occurs in annual increments. The subsequent wealth creation frequently requires years to materialize. The wait, Microsoft proves, is worth enduring.
Sometimes, though, the waiting is the easy part.
I first recommended T. Rowe Price (NASDAQ: TROW), the Baltimore-based mutual-fund Goliath, this past may May. T. Rowe Price has 31 years of consecutive annual dividend growth to its name.
I have yet to experience T. Rowe Price’s dividend growth. The dividend has yet been increased since my initial recommendation.
I build on past growth and expected growth. We have experienced significant share-price growth. T. Rowe Price shares are up 44% since my initial recommendation.
Opportune timing again served as an accelerator.
T. Rowe Price offered a favorable entry price in May. The share price was depressed on concerns over growth (much like with Microsoft). Assets under management (AUM) growth was nonexistent in 2016.
I was undeterred. I knew there was still room for T. Rowe Price’s active-investing approach to portfolio management. I’ve been proven right.
AUM has increased 17% since the end of 2016. This is outstanding growth for a company of T. Rowe Price’s considerable girth. Rising AUM will, in turn, drive revenue and investment fees higher.
Better yet, higher revenue and investment fees will drive the dividend higher. The higher dividend will, in turn, drive the share price higher. It’s a virtuous circle.
You can accumulate wealth slowly with the 9th Wonder strategy; you can accumulate wealth quickly. Either way, you will accumulate wealth.