The Power Of Dividend Reinvestment. Harness The Power!

First I would like to say Wow! What a great day for the stock market! I have been looking for a positive day like this for weeks. The Dow up 273.28 to close up 2.76% to 10,172.53 I also enjoyed the nice action in WFT-Weatherford International. Finally the market has given this stock a little respect up 6.81% on the day. We still have a long push upward with this company.

Today I’m going to talk about the power of dividend reinvestment. You may say what is a dividend?

A Dividend is a portion of the earnings a company generates to give back to the shareholders of the stock. A large portion of companies pay out a dividend on a quarterly basis to their shareholders, meaning every 3 months.

For example Coca Cola Company ticker symbol (KO)

Pays out a $1.76 a year in dividends and at the current price of $52.45 that would yield a return of roughly 3.4% a year. That means every 3 months you would receive .44 cents for every share that you owned. Not to bad! That is definitely better than what you receive for the money you have parked in your savings account.

Now that we know the definition of a dividend I want to really explain the true power of reinvesting the dividend. Reinvesting the dividend is essentially buying more stock with the dividends you would receive on a quarterly basis. Well continue to use Coca Cola Company (KO) as an example.

Ex: Let’s say you bought 1,000 shares of KO.  Every 3 months you would receive .44 cents a share.

.44 x 1,000=$440 or $1,760 a year.

Say you reinvested those dividends for 30 years and never touched the stock and the price of the stock didn’t appreciate and stayed the same your initial investment of 1,000 shares would turn into 2,636.91 shares and you didn’t do a darn thing. That means:

1,000 shares at 52.45 would be $52,450

After 30 years your initial investment of $52,450 would have grown to a whopping $143,008.44 that’s a 172% return on your money. That was all created by reinvesting and compounding the dividend. You may say okay that’s a lot of money but I’m not really impressed. Check this scenario:

Same investment of 1,000 shares of KO at $52.45 and you reinvest your dividends, but now you also take advantage of the actual stock appreciating in value. Let’s say KO stock grows at an 8.5% rate of return annually. Your initial investment of $52,450 would have grown after 30 years to an amazing total of 1,529,847.31. That’s roughly 2,816% return on your money. You would have made $1,477,397.31 over 30 years. 1.4 million dollars!!!!

Don’t believe it! Check out this link and plug in the numbers

http://www.hughchou.org/calc/drip.php (this is where I pulled all my numbers and I give full credit to this site for a great product)

So in the end dividend reinvestment is the way to go! Harness the power of compound interest and in the long term you will see great results. Some great examples of dividend stocks you may want to check out are the following- (KO)-Coca Cola Company, (PEP)-Pepsico, ( JNJ)-Johnson and Johnson, (KMP)-Kinder Morgan Energy Partners, (MO)-Altria, (XOM)-Exxon Mobil, and (CAT)-Caterpillar to name a few.

If you invested correctly you could have a portfolio that consists of dividend paying stocks. Once in retirement you can pull a portion (a %) of the dividends to use as income to live on and let the rest of the dividends grow by reinvesting to continue to grow your nest egg. Make your money work for you! You have worked hard for your money and now its time to repay yourself!

I would also like to share a great website. I came across this site and have read a few of the articles and the information is very beneficial to all that would like to learn more about dividend stocks to grow their portfolio. This person has great insight!

http://www.dividendgrowthinvestor.com

Thank You,

Clay-

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