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Strategies & Market Trends : Dividend investing for retirement -- Ignore unavailable to you. Want to Upgrade?

To: chowder who wrote (5593)	8/30/2010 9:15:08 AM
From: Triffin	1 Recommendation Read Replies (1) \| Respond to of 34328

The magic of compound dividends .. Found this from an ad for an investment letter .. We all are aware of this, but it bears repeating from time to time .. ============ If you think dividend-paying stocks are boring, it’s time to wake up and smell the money. There is nothing boring about turning a small stake into a King’s ransom and then getting paid every month… whether you work or not. But while dividends matter… what matters even more is to invest in companies that have long history of increasing them. When your dividend payments grow every year, you can make astronomical profits, even if the share price never moves. By reinvesting those growing dividends, you increase the number of shares you hold. So every quarter, your dividend grows… your number of shares increases… and your wealth is multiplied. Your dividend check can actually grow so large that it represents a yield of 30% or more on your original investment! In fact, stick around long enough and the dividends alone could cover the cost of your initial investment. Take Warren Buffet for example. Many people didn’t understand why he would buy Coke in 1988. The company wasn’t growing that fast and the dividend seemed to be low. But Warren knew that Coke was selling at a value. And he understood the power of dividend growth. Buffett put more than $1 billion into shares of Coke. Today, the dividends that Coke pays have become a huge source of income for Berkshire Hathaway… producing an annual yield of more than 30% on the original investment! You could have done the same thing. Had you purchased just 500 shares of Coca-Cola in 1985 it would have cost you $30,000. Today, those shares would be worth $941,700. And your dividend alone would be $31,168 every year! From that original $30,000 investment alone, you would receive $7,792 every quarter! The power of dividend growth is phenomenal. It truly captures the magic of compounding. When dividends are increasing every year, the price of the stock doesn’t even have to go up for you to make a fortune. Let me give you an example, with round numbers to keep it simple. Assume you purchase 100 shares of ABC Corp at $10 a share. We’ll also assume the stock does not appreciate at all while you own it. But the dividend payments increase by 10% each year. If ABC yields 5% when you purchase the shares, the dividend you receive the first year will be $50 (automatically reinvested in more shares, of course). After just 10 years of dividend growth and reinvesting your proceeds, your dividend yield would be 26% on your original investment! This is how a single $40 original share of Coca Cola is paying more than $50,000 a year in dividends today. And by no means is Coca-Cola the only stock that has handed investors these kind of returns. Just $10,000 into Phillip Morris in 1988 grew into nearly $350,000 by last year… not to mention nearly $20,000 a year in dividend payments! $5,000 invested into Pepsi in 1980 would have grown to more than a quarter of a million dollars by 2005. And that is without investing another dollar! The list goes on and on… companies you would recognize and many of which you might not… but the common thread among them all is a long history of dividend increases. =========== Triff ..