I’m an unabashed fan of dividend-growth stocks and dividend stock investing. You should be, too.
As the dividend goes, so goes the share price of the company issuing the dividend. When the dividend is continually increased, the share price continually rises. The correlation may not materialize immediately, but it will materialize.
If you demand empirical evidence, examine the dividend history and share-price action of a dividend aristocrat – a company with decades of dividend growth to its name.
Here are a few dividend aristocrats to consider: McDonald’s (NYSE: MCD), Johnson & Johnson (NYSE: JNJ), T. Rowe Price (NYSE: TROW), Altria Group (NYSE: MO), VF Corp. (NYSE: VFC), and Exxon Mobil (NYSE: XOM). Examine their respective price charts and dividend histories and you’ll have your empirical evidence.
The pattern is easy enough to recognize in graphic form – a rising dividend generates a rising share price. The investor experiences the best of both worlds – a rising income stream and rising wealth.
Egalitarianism is a ready attraction of the dividend-growth strategy. Anyone can employ dividend stock investing. An investor need do no more than buy a proven dividend grower. He or she then sits back and allows time and compounding to work their magic.
What’s more, time and compounding can be turbocharged to generate even more wealth.
If retirement resides decades, as opposed to years, in the future, consider overlaying an additional strategy in your dividend stock investing. Overlay dividend growth with dividend reinvestment. If you’re able to employ the overlay within a tax-deferred account (an IRA, for instance), all the better.
The table below reveals the extraordinary wealth-compounding possibilities when dividend growth and dividend reinvestment are combined in dividend stock investing:
|Initial Investment||Price Per Share||Shares Purchased||Total Shares Owned||Annual Dividends Per Share||Dividends Received|
* Initial investment and reinvestment of dividends occur annually at the beginning of each year.
Here’s what happened in our example of dividend-stock investing:
An investor invested $5,000 in a dividend-growth in 2001. That’s all that was invested.
The $5,000 bought 714 shares of a $7 stock. The dividends were reinvested (which is easy enough to set up automatically). The investor did nothing more than wait.
Over the subsequent 17 years, the annual dividend grew to $1.10 per share from $0.26. The investor collected $10,086 in dividends, which were reinvested in the same dividend-growth stock.
The investor entered 2018 owning 1,137 shares of stock valued at $45. The initial $5,000 investment grew to be worth $51,165 to enter 2018.
Without adding a dime of additional capital, the investor increased his wealth tenfold. The investor’s wealth grew at a 15.5% average annual rate.
What more can an investor ask from an investment strategy?
A dividend-growth stock to buy now with potential to compound likewise, you say. We can help.
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