And so does Ronald Read.
What is this “9th Wonder”?
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You might be familiar with the 7 Wonders: The Great Pyramids of Giza, the Roman Colosseum, the Great Wall of China, and other constructs from antiquity usually spring to mind.
How about the “8th Wonder”?
That term originated with modernity.
The excessively revered scientist Albert Einstein is purported (and also unlikely) to have labeled compound interest the “8th Wonder” of the world.
“He who understands it, earns it,” said Einstein. “He who doesn’t, pays it.”
The 8th Wonder refers to the power of unimpeded compound interest.
If $1,000 were allowed to simply earn 5% interest each year, and the interest earned was reinvested at the end of each year at the same 5% rate, the $1,000 would grow to $1,276 in 10 years.
If you’re willing to add more time, you can add monumentally more wealth.
That same $1,000 under the same circumstances will grow to $131,501 in 100 years. Give it 200 years, and you have $17.29 million.
I have a couple of issues with the 8th Wonder.
First, who has 100 years? Second, where can you find a 5%-coupon investment that can compound unimpeded for 100 years?
These shortcomings led me to the 9th Wonder – a term of my coinage.
The 9th Wonder refers to the power of dividend growth.
No one has exploited the 9th Wonder to his advantage more than Warren Buffett. Long-term Berkshire Hathaway (NYSE: BRK.b) investment Coca-Cola (NYSE: KO) proves my point.
Buffett began accumulating Coca-Cola shares for Berkshire in late 1987. Within a few months, he had purchased $1 billion worth of Coca-Cola at roughly $2.50 per share (split adjusted). The shares paid a $0.09 annual dividend.
The dividend has grown annually since. Coca-Cola pays a $1.60-per-share dividend today.
If we relate the dividend today to Berkshire’s $2.50 cost basis for 1987, an extraordinary number appears.
Berkshire realizes a 64% annual return on its original investment . . . and that’s dividends only. What’s more, that 64% will only grow annually.
And as the dividend goes, so goes the share price.
Berkshire’s $1 billion Coca-Cola investment is worth roughly $19 billion today – 19 times what Buffett paid. (That value excludes dividends.)
Do you think it’s a coincidence that nine of Berkshire’s top-10 stocks investments are 9th Wonder stocks? I don’t.
OK, another fabulous Warren Buffett tale. What about me?
Let’s relate the power of the 9th Wonder and dividend growth to us mere mortals.
I refer to Ronald Read, the name mentioned above.
Ronald Read was no Warren Buffett. He was no Jimmy Buffett.
Read was a nondescript Vermont resident who worked most of his life in the lower trades – janitor, service-station attendant.
Read made less money than most of us. Nevertheless, he continually saved a portion of his meager earnings.
More important, he continually invested what he saved.
When Read died in 2014, at age 92, he left an investment portfolio valued at $8 million.
According to Read’s attorney, the portfolio was stuffed with dividend stocks, most of the dividend-growth variety: AT&T (NYSE: T), Bank of America (NYSE: BAC), CVS Health (NYSE: CVS), and Deere (NYSE: DE) were prominent names.
So, go with the 7 wonders if the goal is inspiration and enlightenment.
Skip the 8th Wonder and embrace the 9th Wonder (dividend growth) if the goal is wealth accumulation.
You’ll keep good company: Warren Buffett, Ronald Read, and me.
You can join me for income and wealth inspiration and enlightenment at the Facebook Group, the Income Freedom Masterclass.
We reveal the secrets to investing in the best dividend-paying stocks. Our Facebook Group is perfect if you want to generate an extra $2,000-to-$5,000 in monthly income.