Get Rich with Dividends Podcast & Power of Reinvestment

The other day I was getting ready for a road trip and, rather than listen to music or talk radio, decided to find a good investing podcast on iTunes. Lo and behold I came across the Get Rich with Dividends Podcast, which not only talked about the power of investing for dividends but had literally just started. There was only a single episode available, and it was only a few days old! Perfect! Get Rich with Dividends takes its name from the book, Get Rich with Dividends: A Proven System for Double Digit Returns written by Marc Lichtenfeld. Marc is also the creator and voice behind the podcast. Next on my list is to read the book.

The podcasts are relatively short (around 26-27 minutes) but packed with a lot of valuable information. They also provide timely advice. For example, the Fed was recently hinting that it might stop or decrease quantitative easing, which subsequently triggered a rise in interest rates. Marc’s podcast that week was entitled, Interest Rates Spike – Should You Sell Your Dividend Stocks?

Get Rich with Dividends is not a “get rich quick” type of site, podcast, or book. It is about growing investments by investing in high quality companies that pay good dividends and have the free cash flow and earnings per share growth to support continued dividend increases. While it might not be the most exciting initially, I find even minor increases each quarter due to dividend growth and/or reinvestment very exciting. I’m young (almost 30) and have the compounding power of time ahead of me. What may be small dividend amounts now will become huge increases in the future.

For example, using the dollar cost averaging and dividend reinvestment spreadsheet available here you can see the power of dividend growth and dividend reinvestment. When I plug in $5000 as the initial investment amount (and don’t add any further investments), a conservative annual stock appreciation of 3%, an initial dividend yield of 2.75%, and an annual dividend increase of 7%, this is what I get:

-Total dividends of $138.91 the first year. By year 5, annual dividends are up to $204.54. By year 10, annual dividends are $340.90. By year 15, $588.99. And, by year 20, $1062.86! Incredible. And, this is without adding any more capital other than the initial $5000 to a made up stock with rather conservative stock appreciation and modest yield/growth inputs. The total value at the end of 20 years is $19,978.97, of which $8,878.16 is reinvested dividends (giving a total cost basis of $13,878.16) and $6,100.81 is capital gains. Not too shabby. In fact, somewhere between year 15 and 16 is when the total amount of dividends received is equal to the initial $5000 that was spent buying the stock.

Now, if I increase the stock appreciation to 7% (Marc says that stocks have historically averaged around 7.5% per year) and keep the other inputs stable, the output is this: Year 1 dividends of $138.90; year 5 dividends of $202.49; year 10 dividends of $324.37; year 15 dividends of $519.60; and year 10 dividends of $832.33. You can see how that because the stock price is increasing more rapidly, the reinvested dividends cannot purchase quite so many shares each time. However, the total value is $32,922.06 (of which capital gains make up $20,072.52). You can see how for the long-term dividend investor, a number of years in a bear market is actually okay. It allows you to accumulate more shares with reinvested dividends than if the stock price kept rising.

As stated earlier, Get Rich with Dividends is not for those that want to get rich quickly. In fact, Marc repeatedly says you should not be in the stock market with money that you may need now or in the next 3 years. He takes a conservative approach to investing. The market in that time period may go up, down, or sideways and no one knows which direction it will go. Money that you don’t need for longer than 3 years should be invested mostly in stocks because historically the stock market has averaged 7.5% per year.

For those of you interested in investing, especially dividend investing, I highly recommend you check out his podcast available on his website, http://getrichwithdividends.com, or on iTunes. I look forward to the latest episode each week! Keep up the great work, Marc.

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