In this consumer-obsessed culture where credit card debt and interest payments appear to be the norm, we tend to forget (or perhaps might not be aware), that there is a way for us to receive interest payments as opposed to constantly paying them.
How? Through something quite amazing called a Dividend.
Dividends are payments made by (some) publicly traded companies to their shareholders simply for owning the stock. The easiest way to think about dividends is as interest payments that you would receive from a company if you owned shares of their stock.
With dividends, YOU are the one receiving payments.
I received my very first dividend – EVER – in the fall of 2008:
Note: The company above is not a recommendation. The example is for educational purposes only.
At the time, I was happy to be a part-owner of a company I really liked and receive free money in the process.
However, the amount was so minor that I wasn’t over the moon excited. That is until time started to take its course and those payments started to compound through a little something called DRIPs (Dividend Reinvestment Plan).
DRIP is a strategy where each time a company pays you a dividend, the dollar amount automatically gets reinvested back into the same company.
I like to think of this process as a little “money machine” where your investment grows over time without you having to do anything other than let time take its course.
If the company is of HIGH QUALITY (Note: not all dividend payers are created equal. Research is necessary) and the stock price continues to go up over time – you’ll benefit twofold: from the stock price appreciation as well as the dividend payments received.
To drive this point home, I’d like to share an example:
Let’s say that back in 2014 you had $1,000 that you could afford to invest and you bought stock in a dividend-paying company that you knew very well and loved. You also felt strongly about the company’s potential to continue growing and thriving over time.
Back in those days, the price of that stock was $86.45 per share.
Those $1,000 you had allowed you to purchase 11 shares.
In addition to buying the shares, you decided to enroll in DRIPs so that the dividends could simply be reinvested automatically.
The annual dividend payments per share back in 2014 were $3.24.
The company continued to increase dividends every single year to the point that in 2019, the payments grew to an annual $4.64 per share ( think of this as 2.44% interest).
By the time 2019 rolled around, your initial investment of $1,000 has grown to $2,389.05 without you having to do ANYTHING! Simply by letting the company thrive and reinvesting those dividends despite the ups and downs of the stock market.
By the time 2019 rolled around, your initial investment of $1,000 has grown to $2,389.05 without you having to do ANYTHING!
Had you let those same $1,000 that you did not need in the short term sitting at a bank collecting 0.06% annual interest (the national average), your money would have “grown” to $1,003 – if you can really call that “growth”.
This is yet another example of how AMAZING investing can be. Dividend investing is one of many ways in which you can grow wealth OVER TIME. It requires making educated decisions, being diversified, and patience. However, the rewards can be quite amazing.
Do you own any dividend payers? If so, are you enrolled in DRIPs?
OR, is this something you want to learn more about? What questions do you have?
Let me know in the comments! 🙂
Cheers to Health & Wealth,
Courses & Resources by Girl$ on The Money:
Interested in learning more about Dividends? Check out our highly rated class which teaches you how to make EDUCATED investing decisions around dividend stocks and how to become a Dividend Investor. The class includes a Dividend Guide which lists (in detail) my top 10 favorite dividend-paying stocks. To learn more and enroll, click here.
New to investing? Check out this resource:
Understanding Your Investing Options: Step by Step Guide for Beginner Investors – new to investing and not sure where to begin and/or feeling overwhelmed with all the options available in this day and age?! This guide is for you. Check out details here.