Never forget these two axioms:
Money frees us, but its pursuit may enslave us.
It’s not how much you have at the end; it’s how much you could have made.
Let’s show the math behind dividend growth investing in real terms.
As stated before, the key to dividend growth investing is not only a steady growth of income, but the increase in shares generating more and more dividend income each quarter. The other variable in dividend growth investing is the price of the stock which can increase or decrease thus accordingly altering the number of shares purchased each time a dividend is generated (usually quarterly). Thus, the interrelationship between all of these three variables (dividend amount, increase in dividend, and stock price) is complex and virtually impossible to predict in terms of total value in the stock, the amount of dividend generated, and the number of shares owned at any given point in time.
The outcomes even in a positive sense (ie, increased value after investing your money) are myriad depending on what any of these variables do at any given time, especially with a fluctuating stock price.
However, we have to start somewhere and to give you an idea of how this mechanism of dividend growth investing would look...behold!
For those of you who like to see the math dividend payment by dividend payment…
Sarcastic Reader: Who are these freaks!?!
To see the total returns dividend paying stocks have generated over the years, there are calculators that do all the heavy lifting for you and can give your total return for said stock derived from the exact date of initial purchase, amount initially purchased, and accounting for ongoing regular investments if that was ever done after the initial purchase.
People will argue that you cannot 100% predict that companies will continue increasing dividends until the day you retire…which is true….though this is as predictable as the market gets if you’re putting money into a company that has increased dividends for over half a century consecutively. Even with ongoing dividend growth with some companies which have not yet reached Dividend Champion status, the total returns can be staggering as noted here.
Of note, there is a psychological aspect to dividend growth investing that I use to help me keep the faith during the fallow times.
Perhaps, this is self rationalization amongst dividend growth investors, but the way to look at it to steady the course once you’ve moved forward and put your hard earned money at risk (and—don’t fool yourself—that is exactly what you’re doing any time you invest) is the following:
When your stock price is down, you’re buying shares of a great company at an even better price.
Who doesn’t like a sale?
When your stock price is up, you’re worth more.
Who doesn’t like to be richer?
Who indeed…?
I’d love to hear from any and all of you about your thoughts, so we can all learn from one another.
Please spread the word about this blog to your friends (real and virtual), family, and colleagues. Talk to you soon.
Until next time…