No Overnight Riches

The ‘ah-ha’ moment is tough to have in dividend investing because it doesn’t happen overnight. It’s such a long, drawn-out process. It doesn’t get exciting until you’ve been doing it for so long that you’re no longer excitable in some cases! The Chinese are known to be very strategic in their thinking. Economically, militarily, and politically, they are patient, and they always play the long game waiting things out until the time is right. I’m not suggesting you buy Alibaba stock, but as dividend investors, we could benefit from their temperament and long-term way of thinking. If you shift into the Dividend Lifestyle today and start investing in some of the Dividend Aristocrats, frankly, it will not be that exciting for a while. Certainly not as exciting as trading Zoom stock, crypto, or options, but as we’ve said, proper investing should be somewhat boring if done correctly. And remember, there’s a huge difference between investing (long term) and trading or speculating (short term). 

Let’s say you buy 100 shares of Exxon, let it ride and reinvest the dividends. In three years, you may have picked up a couple of extra shares from dividend reinvesting. After three years, the underlying stock price either went up, down or stayed the same. That’s not so exciting. If you look out over 30 years, however, reinvesting dividends that are increasing each year, compounding year over year, now maybe you have 1,000 shares. Let’s use an example of, say, Home Depot, which as of this writing, is trading at roughly $300 per share. The 2021 dividend payout was $7.60 per share, which equates to approximately a 2.5% yield today. Not super exciting, but the cool part is over the past decade, Home Depot has increased their dividend annually by over 10% and 16% year over year increases over the past five years.
So a steadily increasing dividend payout by a well-capitalized, well-run business. If you assume these numbers stay the same and you bought 100 shares of Home Depot stock today, reinvested the rising dividends, and laid down and took a 30-year nap, assuming the stock returns an S&P500 historical average of 10% annually, when you wake up from your nap you would have 657 shares with a value of $3.7 million dollars. Not bad for a $30k investment and basically doing zero work over the course of the time horizon. 

This article was written on Dec 11, 2022.

Disclosure: One cannot invest directly in an index. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Examples are for illustration purpose only and do not represent an actual investment. Dividends are not guaranteed and must be authorized by the company's board of directors.  Investments mentioned may not be suitable for all investors. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.