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Strategies & Market Trends : Dividend investing for retirement
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To: Kip S who wrote (3776)2/13/2010 6:15:50 PM
From: Paul Senior1 Recommendation  Read Replies (1) of 34328
 
I first attack it with the rule of 72.

Put $100 into each stock.

First stock pays 5% or $5/sh. Dividend grows at 5%, so in 72/5 or about 14 years the div. has doubled to $10. In the problem, I'm supposed to be "interested in dividend appreciation only". I don't understand quite what that means. If the stock is valued on its dividend and that doesn't change in 14 years, then the stock would still be trading at a 5% yield. $10/.05 = $200/sh.

Second stock pays 3% or $3/sh. Dividend grows at 10%, so doubles to $6 in 7.2 years and doubles again in the next 7.2 years to $12/sh. (So 14 years is roughly similar time frames for both stocks.) Again, if the stock still has no relative change on dividend yield compared to where it was 14.4 years earlier, this stock would sell at 3% yield or at $12/.03 = $400/sh.

Nothing new here that I see. Stocks with lower initial dividend percentages pay out and are eventually worth more than stocks with higher initial dividends but lower growth going forward of those dividends.

The issue isn't even in finding such stocks. There are plenty of them (aristocrats).

The issue is being aware of such compounding of dividends and having the money and actually acting on an intent to buy one or several of these. And having the determination and fortitude to hold on for 14 years. Through the ups and downs of the stocks, through the media and experts changing of their opinions of the stocks, and through life- wherein the investor decides after a while that maybe the money should be withdrawn for better or different family uses or different (e.g. growth or media-popular) stocks.

Jmo based on my experience of course.
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