The stock market crash of 2008-09 changed the way we invest in stocks. Some investors who had big losses just swore off the market and vowed never to invest in them again. Many others have been hesitant to start investing again. They missed this roaring bull market that more than doubled the Dow Jones Industrial Average. They see that the yield on bonds is almost zero. Real estate prices have trickled up a bit but still the market is shaky. Here we want to look at dividend stocks as a way to test the waters again. The companies paying dividends has dropped like a stone in recent years. In 1985, 75% of stocks paid dividends. Now 75% pay NO dividends. The companies that weathered the ups and downs of the past 28 years are stronger and have more cash available.
These events have opened up a new booming market. Investors want less risk and dividend stocks provide this measure of safety. In addition savvy investors have found a way to use dividend stocks to build wealth.
There are several ways to do this. The simplest course is to buy mutual funds that invest in dividend stocks. Only four funds do this. They are: Amana Trust Income (AMANX), Columbia Dividend Inc. (LBSAX), Oakmark Equity Inc.(OAKBX) and Parnassus Equity Inc. (PXBLX).
If you like ETFs you can invest in Blackrock’s iShares. If you are wondering who Blackrock is they manage $3.79 TRILLION in assets. They have four dividend iShares. They are: HDV, DVY, IDV and PFF. You can view their holdings by clicking on these symbols.
Another way is to search out high dividend stocks. Here are four companies that currently pay out more than 10% in dividends:
· Arlington Asset Investments Share price $26.88. It pays a dividend of $3.50 or 13.03%
· Windstream Share price of $8.36 and pays a dividend of $1.00 or 12.20%
· Pitney Bowes Share price of $15.39. It pays a dividend of $1.50 or 10.31%
· Vector Corp. Share price of $15.83 and pays a dividend of $1.60 or 10.10%
Now we want to take this one step further. Some of these companies have automatic dividend investment plans. That means you can join this company’s program and they will automatically reinvest your dividends. Now we light a magic wand and create our wealth- building machine.
Pitney Bowes has an automatic dividend reinvestment program. Let’s use this example. We buy 500 shares @ $15.39 per share for a total investment of $7,695 and we reinvest our dividends for 15 years. We are reinvesting $750 for 15 years, but and here’s the magic. We are COMPOUNDING our principal at 10.31%. To get a quick answer to this problem we use a compounding calculator at http://www.interestcalc.org/
The results are quite amazing. Over 15 years we will have reinvested $11,250. Our compound interest at 10.31% is $41,525.96. Our total investment is now worth $60,470.96.
Keep in mind that the dividend may vary which would affect your returns. However, you can see that you don’t need millions to accumulate wealth. You need a solid plan and the patience to stay with it over the long haul.