Get Ready to Buy These 4 Dividend Compounders
By Sean MacIntyre
If you took a penny and doubled it every day for a month, how much would you come up with? A hundred dollars? A thousand dollars? How about a million dollars?
Not even close.
If you start with just a single penny and double it every day for 31 days, you’ll end up with… $21,474,836.48. Over twenty-one million dollars in a single month!
This is an example of the power of compound interest.
Your original penny will have turned into two. But then those two will have turned into four, those four turned into eight, and so on.
The growth of your money will have accelerated, or sped up, not only because your original penny was collecting interest but also because all the pennies you received as interest also began to earn interest. And so the growth built up — or compounded.
That’s how we get the term compound interest, one of the most powerful forces in the universe of making money. So powerful that Albert Einstein reportedly called compound interest the eighth wonder of the world.
For the most part, compounding only works with assets that that both appreciate and produce income.
There are effectively two types of assets: those that appreciate, and those that produce income.
When you own stocks that both appreciate and pay dividends you can begin compounding your way to wealth.
How to Get Rich With Double Compounding!
So far, you’ve seen the power that regular compounding has for increasing your wealth.
However, there’s a way to compound the compounding process. Here, it doesn’t just depend on the return on your asset, but how much that return can grow.
Let me explain.
While some investments quickly increase income, it’s unlikely that this income will stay the same year after year. In some cases, it will stay the same, as with bonds. In some situations, income will decrease over time.
But the assets I like increase their income payouts year after year.
These are assets like rental real estate, where you can increase the rent every year, or certain stocks that increase their dividend payouts every year.
The income paid by stocks is called a dividend. When a stock pays you a dividend, you can invest that cash back into the same stock to achieve compounding.
Let me give you an example of how this process can build your wealth…
Say you invest $100,000 in a fund that averages a 6.4% compound return every year — the low-end of what an S&P 500 index fund provides when you reinvest the dividends it pays.
After 30 years of compounding, your $100,000 would become $643,056.
That’s not bad. But you could do better.
Let’s say you find a single stock that pays a 6.4% dividend, but increases this dividend by 5% every year…
So that in year two the dividend is 6.72%, and in year three it’s 7.06%, and so on.
Look at the chart below, and you’ll be amazed at what this does to the value of your investments…
By reinvesting your dividends and letting compounding work for you, your Johnson & Johnson position would be worth $$53,249. Your “hands-off” strategy made you more than five times your money!
Let me give you two other great examples: PPG Industries (PPG) and Sherwin-Williams Company (SHW).
PPG yielded about 2.81% near the end of 2006.
And if you bought in 2006, you would have seen PPG’s dividend raised by 249% from payouts of $0.71 in 2006 to $2.48 in 2022… and a $10,000 investment would have grown to $67,942.
As you can see, the first few years start out almost exactly like regular compounding. Yet, over time, double compounding takes off like a rocket.
Even more impressive is the yield to cost, which is the size of the dividend compared to your original investment.
By year 30, you’re earning over $1,100,000 per year — in cash alone. That’s over 10 times your original investment!
Where to Find Double Compounders
In the stock market, there is a small group of companies that raise their dividends every year.
A 5-10% dividend raise is not uncommon among these companies, which means their payouts roughly double every seven to 12 years.
And remember, this scenario — which will make you a millionaire over time — doesn’t require you to dip into your pocket after your initial investment.
All you need to do is keep your hands off it and let your dividends do the work for you.
Here’s a real-life example: 20 years ago, you could have invested $10,000 in dividend stalwart Johnson & Johnson, which has 60 straight years of dividend increases, and has increased its dividend about 5.78% per year on average for the last three years.
Here’s how your investment would have played out:
And its dividend yield today is 1.83% from 2.86% in 2006. Why is this number today lower than in 2006? Well, the stock price increased faster than the dividend payout, which means investors like the stock because it is a solid business and rewards shareholders with increasing payouts.
Let me tell you about Sherwin-Williams to further show the power of reinvesting dividends and compounding.
At the end of December 2006, SHW yielded about 1.60%.
Just like PPG above, SHW shares rose in price each year from $51.66 to $251.61.
Now, if you would have purchased this stock in 2006, you would have seen a dividend increase raised by 495% from $0.83 per share to $4.94. A $10,000 investment would have also grown to $211,985.
And its dividend yield today is 0.96% from 1.60% in 2006.
Just like PPG above, the stock price increased faster than the dividend payout, which means that this company rewards shareholders and that business is solid.
With the stock market struggling along, where else can investors go to shield the bull market gains they received over the last 10+ years… AND generate an amazing yield on cost?
This is a great example of what happens when you buy strong operating businesses that pay larger and larger dividends. You can’t help but get rich… all thanks to the magic of double compounding.
And if you can buy these stocks at fantastic bargain prices when the market is down, even better.
If you implement this approach and have the fortitude to leave your money invested and never sell until you’re ready to cash out, you’ll do better than you would with almost any other stock market strategy in existence.
And listen, this strategy will actually do more than help you get wealthy. It could also leave you with an enormous moneymaking machine you can pass on to your kids or grandkids.
Why You Must Use The “Snowball Effect”
As you can see from the preceding tables and examples, compound interest begins to work for you right away.
The second year, you’re already making more interest than you did the first year; the third year, you’re making more than you did the second year; and so on…
As a result of the compounding, your investment grows exponentially over time — like a snowball rolling down a hill, becoming bigger and bigger.
The longer you stay invested, the more your wealth increases each year. That’s why time is so important… and why you must absolutely begin investing as soon as possible.
Starting today — literally, today — begin the practice of investing in assets that can double compound your money.
And if you’re already investing, invest more. Get your hands on some amount of money and invest it immediately.
Try to invest at least 15 percent of your gross income. If you don’t have that much cash, put away as much as you possibly can. The result over time will be significant, compounding wealth.
But what should you invest in?
We’ve got you covered here, too.
Below are four dividend-growth stocks we recommend that will give you the “double compounding” effect we mentioned above.
These companies are so profitable and so dedicated to rewarding shareholders with income, these companies have even been able to continue increasing their dividends even during market downturns.
(All data as of 12/1/2022)
— Dividend Compounder #1: Target Corp (TGT) —
Name: Target Corp
Symbol: TGT
Market Cap: $75 billion
Dividend Yield: 2.41%
Current Dividend Payout Per Share: $4.32
Consecutive Years of Dividend Increases: 55
Average Dividend Increase Per Year Over Last Decade: 11.13% per year
Most Recent Dividend Increase: August 16th, 2022
Investment Thesis: Target is one of the largest retail, grocery, and home goods stores in the U.S. It sells everyday general merchandise products at discounted prices. It was founded in 1902 and the company did about $93 billion in revenue in 2021.
20-Year Returns with Dividends Reinvested: 589.47%
20-Year Returns without Dividends Reinvested: 450.06%
— Dividend Compounder #2: Johnson & Johnson (JNJ) —
Name: Johnson & Johnson
Symbol: JNJ
Market Cap: $464.12 billion
Dividend Yield: 2.54%
Consecutive Years of Dividend Increases: 60
Current Dividend Payout Per Share: $4.52
Average Dividend Increase Per Year Over Last Decade: 6.42% per year
Most Recent Dividend Increase: May 23rd, 2022
Investment Thesis: Johnson and Johnson is the largest worldwide healthcare firm, and it has operated for decades. Johnson and Johnson was one of the first companies to develop an approved-for-use Covid vaccine in 2021, for example. It is also one of the largest personal care providers in the world, providing necessary products people use every day like bandages, moisturizers, sunscreens, pain relief medications, allergy medications, cough and cold medicines and so much more.
20-Year Returns with Dividends Reinvested: 453.32%
20-Year Returns without Dividends Reinvested: 313.32%
— Dividend Compounder #3: Altria Group (MO) —
Name: Altria Group
Symbol: MO
Market Cap: $84.69 billion
Dividend Yield: 8.0%
Current Dividend Payout Per Share: $3.76
Consecutive Years of Dividend Increases: 53
Average Dividend Increase Per Year Over Last Decade: 8.34% per year
Most Recent Dividend Increase: September 13, 2022
Investment Thesis: Altria has been around for decades. It is one of the largest worldwide producers, manufacturers, and sellers of cigarettes and smokeless tobacco. Its most well-known brand is Marlboro, and it owns an estimated 40% market share of cigarette sales in the U.S.
20-Year Returns with Dividends Reinvested: 1,536.08%
20-Year Returns without Dividends Reinvested: 346.34%
— Dividend Compounder #4 —
Name: “Legacy Stock No. 14”
Symbol: [Click here to see how to reveal]
Market Cap: $2.33 trillion
Dividend Yield: 0.65%
Current Dividend Payout Per Share: $0.92
Consecutive Years of Dividend Increases: 11
Average Dividend Increase Per Year Over Last Decade: 25.26% per year
Most Recent Dividend Increase: February 4th, 2022
Investment Thesis: This company has been around for decades but really took off in the early 2000s with its brand of portable consumer electronics. Since then, it has become one of the largest companies in the world. Because of its competitive advantages and market position it earns enormous profits and cash flows. The company has been using these enormous profits and cash flows to continue growing the value of the company, as well as increase its dividends and share buybacks.
You might have noticed the current yield and payout are on the lower end, relative to the first three stocks. However, this company is hiking its dividend at an aggressive rate and back in 2012, committed to doing so every year. Any time you can get in at the start of a company’s aggressive dividend growth, you can stand to make a killing.
20-Year Returns with Dividends Reinvested: 64,347.06%
20-Year Returns without Dividends Reinvested: 57,348.02%
In Summary
All four of these stocks have all performed exceptionally over the years, and I anticipate that both their growth and dividend compounding will continue as well.
Better yet, a modest investment in each stock 20 years ago would have already made you wealthy by now via the double compounding method mentioned above.
But I should mention one detail: The last stock is special.
Why?
It’s one of the stocks in what we call our Legacy Portfolio.
This is a 20+ stock collection of the most dominant and successful stocks in the world, each with a proven track record of success and a high likelihood of continuing to grow (and pay investors increasing dividends) for decades in the future.
The goal of the Legacy Portfolio is simple: We want to accumulate as many shares as possible of these great companies by collecting dividends, using them to buy more Legacy Stocks, and never sell so that we can compound our way to wealth.
If you want to gain access to our special report on Legacy Stock No. 14, you can do so by clicking this link.
In the meantime, don’t wait to buy a stake in these four Dividend Compounders mentioned here. Every day not invested is a day without compounding.