|The Importance of Rising Dividends
When you first purchase a stock, the
“current” dividend is the dividend payout you
get from the very beginning. Expressed as a
percentage of the stock's price, it is called the
"current yield." As companies increase their
dividends (pay out more dollars per share),
your yield, based on your initial investment,
Say a company has a dividend yield of 3.5%
when you purchase it, and it increases its
dividend 12% per year—as many stocks on
the Top 40 list do. Your yield goes from
3.5% in Year One, to 3.9% in Year Two, to
4.4% in Year Three, to 4.9% in Year Four,
and to 5.5% in Year Five.
In dollar terms: Suppose you invest $10,000
in this stock. In Year One, you’ll receive
$350 in cash dividends. In Year Two, $390.
Year Three, $440. Year Four, $490. And Year
If you’re young and accumulating, you can
re-invest that money, perhaps buying more
shares of the same company. If you’re retired
and want to take the dividends as income to
live on, you can do that too.
Those increasing payments come to you no
matter how the underlying stock’s price
oscillates. Hopefully that price will trend up
over the long term, as the company’s
fortunes improve, giving you two important
sources of wealth: the dividends and the
increasing values of the shares themselves.