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May Dividend King Shares Take You To The Promised Land | Smart Change: Personal Finance

(Stefon Walters)

A well-rounded investment portfolio should include companies that pay dividends. As a shareholder, dividends are a way of being rewarded for holding on to your investments, and when used properly they can make up a good portion of your portfolio’s overall return. However, not all dividend-paying companies are created equal. If you’re looking for consistent, established companies, look no further than Dividend Kings.

That is why you must let them lead you to the promised land.

Image source: Getty Images.

They have stood the test of time

dividend kings They earned their honorable title because they’ve managed to increase their annual dividends for at least 50 consecutive years. Being able to earn a dividend for such a long period of time is an achievement in itself, but being able to increase it over many years is an entirely different achievement. With Dividend Kings, you know you’re investing in companies that stand the test of time.

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Any company with the title of Dividend King in 2022 has increased its dividend the least since 1972. During this time, these companies have managed some of the toughest economic conditions the US has ever seen. Dividend Kings achieved this:

  • Black Monday (1987).
  • The collapse of the dot-com bubble (2000).
  • Great Recession/Financial crisis (2008-2009).
  • COVID-19 pandemic (2020).

There were plenty of solid companies that had to cut their dividends at the time, including leading Fortune 500 companies, but Dividend Kings stood firm and weathered the storm.

DRIP has power

While receiving dividends can be a great source of income, the real power comes when you sign up with your brokerage firm. dividend reinvestment program (DRIP). With DRIP, any dividends you receive are automatically used to buy more shares of the company or fund that it pays them. This adds to the power of compound interest.

Let’s say we have two funds, one with no dividends and the other with a dividend yield of 2.5%, and you contribute $500 per month to both and get an annual return of 10% (the historical average of the S&P 500). Assuming the dividend yield stays the same, after 25 years the account totals look like this:

fund, capital dividend yield Amount Contributed in 25 Years Account Total After 25 Years
Fund 1 0% $150,000 $590,000
fund 2 2.5% $150,000 $864,000

Data source: author calculations

With zero additional effort, receiving (and reinvesting) dividends increased your account total by nearly $274,000. As a dividend investor, it helps delay receiving payments in cash. pensionIt may be more beneficial to have an additional source of income. Until then, you can reap great rewards using a DRIP. Even if you manage to save $500,000 in a fund with a yield of 2.5%, that’s $12,500 in annual payments.

More importantly, it helps you invest in Dividend Kings because, in good faith, you can not only rely on the dividend but also predict it will increase. Your dividend payout increases, your stock count increases, and you get higher payouts; It’s a cycle you want to get stuck in.

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