At
Money Morning
, we’re big proponents of
. It’s a strategy that will help you amass tremendous wealth
over time.
Our Chief Investment Strategist Keith Fitz-Gerald showed
investors just how valuable dividend reinvestment is to your
portfolio using a single example and a stunning graphic to
illustrate his point.
Here’s Fitz-Gerald on the power of dividend
reinvestment…
Why Dividend Reinvestment Is a Must
Reinvesting dividends is the practice of buying additional
shares of a stock using the dividends themselves to pay for your
purchase. It results in long-term compounding, and that’s key to
building a fortune.
Let’s use Altria Group Inc. (NYSE:
MO
), a
high-yield dividend stock
, as an example. Last September, Altria boosted its dividend for
the 48th time in the last 45 years. Shares yield 4.11%.
While that’s fabulous for any investor, some have made out like
bandits. Depending on when they originally purchased shares,
they’ve had the chance to receive more in dividends than they
originally paid for the stock itself. Which means, practically
speaking, they own the stock for “free.”
Over time, the difference between simple appreciation and the
effects of continual dividend reinvestment is jaw-dropping.
Had in you invested in MO stock on Jan. 2, 1970, and left that
money alone until the close of trading on Sept. 2, 2014, your
return would be 431,800%, adjusted for dividends and stock
splits.
Many companies even offer dividend reinvestment plans (DRIPs) as
a means for investors to purchase shares over time. Investors can
start with a small number of shares and, instead of receiving
dividends as cash, reinvest continually in the company’s stock.
This achieves two things. 1) It puts the plan on autopilot, and
2) it helps you maximize the effectiveness of dollar-cost averaging
over time. You spread your purchases out and never have to lift a
finger to do so.
The DRIP strategy isn’t a get-rich-quick tactic. But for
investors with an eye toward the long term, its power is unrivaled
in transforming modest investments into mega-returns down the
road.
More on Dividend Reinvestment Plans:
How DRIPS Are the Fastest Way to Accelerate Your
Income
For more investing tips and stock picks from Fitz-Gerald,
go here…
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