I learned about dividend re-investment here on TheFool. I'd been taking my dividends in cash, but changedover to having the dividends re-invested. (Fidelity willdo this at no charge or commission, and they will keep trackof fractional shares for you.)So when the latest Corus Bankshares dividend hit, I became thenew owner of .377 shares of Corus. Compound growth, here I come!A small beginning, but I am reminded that the mightiest oaktree is just some nut who stood his ground.Chris
Compound growth, here I come!A small beginning, but I am reminded that the mightiest oaktree is just some nut who stood his ground.Chris Chris, This is obviously not your first step since you know what compound growth is...too many people don't.This post made me smile....thinking back.J.P.
My IRA that I started in April 1980 with a $2,000 tax-deductible contribution has compounded at 24.2% since I started it to December 2005.Kahuna,CFA***************************************Do what?
I never re-invest the dividend in the company that paid the dividend. That is foolish, not Foolish.It's not necessarily foolish at all. I know that the thinking goes that the dividend gets re-invested in the best alternative available at the time. That involves commission where DRIPing usually doesn't. That could be extremely expensive unless you have a very large portfolio where transaction costs on investing a dividend are under 1%. You may also end up sitting in cash instead of getting the benefit of further dividend compounding. Additionally, the best alternative maybe be cheap right now but have poorer dividend growth potential. And then there's the time and judgement call required to determine a better alternative. If you own a solid dividend grower, then DRIPing the dividend may be smart not foolish. ;)Mike
Chris,I started working at my full time job in June of 1997. Around July of 1998, my employer welcomed me to elegibility for its retirement plan by placing one share of its stock in my retirement account. Every payday since then (well -- except for the one when the payroll department messed up my paycheck), I've contributed to the 401(k) portion of the plan. Additionally, every year since then, the company has kicked in a percentage of my salary to the account, in the form of company stock.As fate would have it, my day job happens to be at one of the longest-tenured companies on Mergent's Dividend Achievers list, a list of companies that pay and have regularly grown their dividends. The list can be found here: http://www.mergent.com/publish/DividendAchieversPacket.pdf .To make a long story short, we're now coming up on a mere 8 years since that first retirement contribution. The dividends have continued to rise. The number of shares in the account has also continued to rise, thanks to my contributions, the company's contributions, and the reinvested dividends themselves. As it stands now, if I took the dividends as cash (ignoring taxes for the minute), a year's worth of dividends would be enough to not only make a year's worth of my car payment when I had one, but also to pay for a year's worth of insurance on that car, as well.Forward looking projections get a little hairy, because they're essentially guesses as to tax and retirement law changes, company stock price movements, dividend policy adjustments, business strength, salary and benefit changes, whether or not I keep my job, and a whole host of other factors. I certainly don't know what will happen. Depending on the scenerio I look at and the assumptions and projections I make, however (and again, ignoring income taxes for a minute), there's a very real chance that within the next 16 years, the annual dividends from that account alone will possibly be able to make our entire annual mortgage payment, including property taxes and property insurance. In 16 years, I'll also possibly be early-retirement elegible, based on the early retirement package guidelines that were used in the last downsizing effort.Add my wife's 401(k) from when she worked, our IRAs, and our after-tax savings and investments into the picture, and assuming my employer's retiree health care benefit stays largely intact, and there's a very real chance that I'd be able to take advantage of any early retirement packages that might be offered around that time. In essence, I may be able to retire from my day job in my mid 40s, without a hit to our family's lifestyle.Unless he skips a few grades, our oldest child will be in high school at that time. I won't have to miss any of his (or his little sister's, either) school and extra-curricular events for work trips or late nights in the office. How many dads can say that? If she lives as long as her mother did, my grandmother may still be alive. How many retirees do you know who can visit with a grandparent? Heck -- depending on what they choose to do, I may very well be retiring at about the same time as my parents. Can you imagine that? Plus, if the dividends thrown off from our investments continue to grow faster than inflation, then our income in retirement will likely grow faster than our cost of living. How many pensions and annuities grow their payments at all, much less faster than inflation?To put it in a different perspective, our standard of living may very well get higher, after taking an early retirement. And it'd all be possible thanks to the power of dividend growth investing.So Chris -- you're exactly right. "the mightiest oak tree is just some nut who stood his ground." Or as I like to quote, "a journey of 1,000 miles begins with a single step." Congratulations on your first dividend reinvestment, in a company that appears on Mergent's Dividend Achievers list, no less. May it be the beginning of a fabulous journey and the first giant step of your quest for financial freedom.Best regards,-Chuck
Excellent post, Chuck. Richard Russell has a fabulous chart on his website on the power of compounding. Slow and steady, but the earlier one starts the better
Chuck:You have to be a bit careful with the Mergents Achievers List. For example, one stock that we own (WRE) they list as 43 Years Of Growth. That is when they started to give dividends. They only claim 33 consecutive years. And for UDR (also which we own), they list 19 years whereas UDR claims 29 years.Or does Years of Growth mean something different than consecutive years of dividend increases?brucedoe
Or does Years of Growth mean something different than consecutive years of dividend increases?It can. For example, a company could raise its dividend only every other year, and yet claim to have paid higher dividends every year. An example, would be if they raise it mid year, so you could get, for example, something like this:Year one: quarterly payouts of 10, 10, 11, 11 cents/shareYear two: 11 cents each quarterYear three: payouts of 11, 11, 12, and 12 cents/shareSo the company didn't raise it in year two (ending any streak of "consecutive increases") but it did have higher payouts each year. taken to extremes...a company could raise its dividend 15 times in 30 years, yet legitimately claim to have paid higher dividends for 30 years in a row.That's one reason that these lists have to be taken with a grain of salt. Another problem is the dividend growth rate. Some utilities, for example, may have long streaks, but the increase can be extremely small. You may find, for example, that a compnay increased its quarterly payout just a half-cent...from 45 cents to 45.5 cents, which isn't much of an increase. That's why the dividend growth rate may be more imprtant than the simple yield...or the number of years of increases.
Just remember to diversify. Too much in one stock can be bad for your health.SJ
Or does Years of Growth mean something different than consecutive years of dividend increases?another interpretation:the discrepancy may be in the small print....Mergent's requires 10 years of dividend growth to make the list....(10 + 33=43 years total)Mergent's may be listing how long company "y" has been on the list, while the company is giving the total dividend history.
the truth comes with many points of view:chk999:.377 shares kahuna:The 1,000 shares ...cost $20,062.50. ...dividend yield is 16%...clearly scale drives each truth....yes a 20 dollar commission is nothing for $20K purchase, and a 6% yield is giving you a $3200 dividend...it is much easier for to redirect large chunks of change at that scale.but, for chris and myself, dealing with $20 or $30 dollar dividends in small portfolios, it is the absolute heighth of "Foolishness" to let it build by reinvestment.
Hi brucedoe,Or does Years of Growth mean something different than consecutive years of dividend increases?I think dfish got it right -- or at least close enough to 'right' to handle most of the cases I've seen where Mergent lists a company as longer on the list than the company itself does. I think Mergent uses dividends paid over a calendar year as its basis. If that interpretation is correct, if a company raises its dividend in the middle of one year, it can skip the next year's raise entirely and still have it count as a higher dividend.I'm not sure of the case where the company claims a longer dividend growth history than Mergent does. It could very well be an error in data collection. Or, it could be a case where a "corporate action" like a spinoff or a special dividend was interpreted one way by Mergent and a different way by the company. That's an interesting piece of data, and it's one worth looking into.In any event, I like using Mergent's list as an initial screening tool, not as a buy list. When it comes to future dividend growth, the past is nice to know, but the firm still needs to have the financial wherewithal to continue the practice into the future.Regards,-Chuck
Hi SJ,Just remember to diversify. Too much in one stock can be bad for your health.Thanks for your concern! You can see the stocks currently in my personal portfolio by looking at my TMF profile. Just click on my Fool ID above, to get there. Hopefully, you'll be satisfied that I've taken the time to spread my investments around (and that many of the companies there share dividend growth characteristics). Please understand, however, that just because I currently own those stocks does not mean that I would currently be buying them or would recommend that you buy them.Best regards, and thanks again for your concern.-Chuck
The 1,000 shares of Philip Morris earned you a dividend of $800 last quarter. At $19.95 commission, buying something else instead of dripping would have cost you 2.5%. Additionally, at 20K, assuming a max holding of 5%, you're looking at a 400K portfolio which seems like it might be a tad larger than Chris' "small beginning". To keep costs down while being fully invested in div paying stocks, a smallish portfolio, say less than $100K, is better off DRIPping unless there is new cash flow which can be merged with dividend cash flow. Mike
but, for chris and myself, dealing with $20 or $30 dollar dividends in small portfolios, it is the absolute heighth of "Foolishness" to let it build by reinvestment.This gets to the heart of it. The dividend was $20. My normalcommision is $10.95, so that it would be absurd to try tobuy stock with just that dividend. But the DRIP is costlessto me, so I can just sit back and let it all perk while I goon with life. If I didn't think highly of the company itwouldn't be in my portfolio, so putting the money back into itmakes sense.My current plan is to build a portfolio of stocks of excellentcompanies that pay good dividends and let them DRIP their wayto compound growth. (Several targets on the watch list and I'mjust waiting for the "margin of safety" to look good.)Chris
at Charles W. Schwab where it costs $19.95 for up to 1,000 shares. Why so much? Charles only charges me $12.95 and there is no limit on the number of shares. glh
Yes, Schwab charges us $12.95 also, but Brownco is only $5/trade. Of course Brownco has been bought by E*Trade and will, I guess, disappear so I'm not sure what the future brings.I think DRIPS are fine, but some stocks have a charge to drip. Not all are free. And then there is the record keeping, not severe with modern computers, but necessary. And some charge you a fee for selling "plan" shares.brucedoe
I think DRIPS are fine, but some stocks have a charge to drip. Not all are free. And then there is the record keeping, not severe with modern computers, but necessary. And some charge you a fee for selling "plan" shares.There are brokerages oriented towards DRIPing and SIPing - http://www.betterinvesting.mystockfund.com and http://www.sharebuilder.com. I have no experience with either because, not being an American, I can't open an account with either. I do use a similar brokerage in Canada - https://www.investments.shareowner.com and have been quite pleased with it.There are some recording keeping tools here - http://dripinvesting.org/tools/tools.htm
Hi Kahuna,The 1,000 shares of Philip Morris that I bought in the year 2000 at $20.0625 cost $20,062.50. The $19.95 transaction cost was $19.95/$20,062.50 or 0.10% - far less than 1%. I'm trying to figue how you got a transaction cost of less then 1%. (math is not a strong point for me). Please, please explain.Thank You,Leslie
YielderA posted:There are brokerages oriented towards DRIPing and SIPing - http://www.betterinvesting.mystockfund.com and http://www.sharebuilder.com. I have no experience with either because, not being an American, I can't open an account with either. I do use a similar brokerage in Canada - https://www.investments.shareowner.com and have been quite pleased with it.Also, the discount brokerage firm, www.Firstrade.com offers free dividend reinvestments.David
My IRA that I started in April 1980 with a $2,000 tax-deductible contribution has compounded at 24.2% since I started it to December 2005.What's your hotkey to type this in every single post? Something generally unused...say, [F8]?
More chewy dividend goodness to report.I am now 2 and a bit shares of Xcel Energy richer.If I did the math right, I will have double the numberof shares I started with in 15 and a bit years. That'swithout investing any additional capital.This compound interest stuff is mighty juju.Chris - now if I could just convert saved aluminum cans intoshares of Coke ...
The 1,000 shares of Philip Morris that I bought in the year 2000 at $20.0625 cost $20,062.50. The $19.95 transaction cost was $19.95/$20,062.50 or 0.10% - far less than 1%.I'm trying to figue how you got a transaction cost of less then 1%. (math is not a strong point for me). Please, please explain.not Kahuna, but i can explain, i think:$20 fee divided by $20,000 investment equals .001 or, 0.1%(1% will show up on your calculator as .01...1/100= "1 per 100", or "1 per cent")hope that helps.
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