How To Do Nothing And Get A Raise!

Sound too good to be true?

Believe it!

This is not some “snake oil scam” or “get rich quick scheme”to trick you into reading this article.This is the absolute truth and one of the most compelling reasons to invest in dividend growth stocks.

How would you feel about getting a 9% raise every year?

Better yet, how would you feel about getting that raise by doing nothing except holding onto a great dividend paying stock?

This is an example of the power of dividend growth.Not only can you re-invest your dividends to leverage the power of compound interest, the dividend growth exaggerates that power even more! You really can’t afford not to invest in dividend growth companies over the long term.

The Math To Prove It!

Consider Bank of America (BAC) and their rather juicy 4.40% Yield.

Here are the yearly dividends paid on Bank of America stock over the past 5 years:

  • 2006 – $2.12/ share
  • 2005 – $1.90/share
  • 2004 – $1.70/share
  • 2003 – $1.44/share
  • 2002 – $1.22/share

Had you purchased Bank of America stock in 2002, you would have received an average of a 9% raise in cash flow every year by doing nothing but holding the stock. When’s the last time you got a 9% raise for doing nothing?

The Bonus!

Are you ready for something even better?

Assume that you purchased your BAC stock on this day in 2002. Your split adjusted (Aug. 2004) purchase price would be $38.45.

Not only are each one of those shares worth about $51.00 today, for a 32% capital gain,  you also have a current dividend yield of 5.5% on your purchase price!

10 comments

  1. I love this idea, of re-investing dividends.
    But my dillema is this: how can this be done with a “standard” online discount broker? Unless that broker supports automatic reinvestment plans, and with fractional shares, the brokerage commissions would kill you and besides you can’t even buy at least 1 share.

    Could you help me with a few suggestions?

    Thank you.

  2. Some discount brokers will offer what is called a “synthetic” dividend reinvestment plan which allows you to re-invest the dividends without paying additional brokerage fees.

  3. I bought my first shares of BAC late in 1998. I’ve reinvested every penny they pay me, and the number of shares I have solely from dividends is now close to 20% of my total – and that’s with me STILL buying new shares on my own every month through a DRiP. It’s amazing how quickly the compunding and the rising dividend results in significant gains.

    My father-in-law meanwhile bought BAC (And Nations bank, which merged with BAC) 20+ years ago, and his yield vs. cost is enormous.

  4. Stefan, I use Zecco for my Roth IRA portfolio. They have no commissions at this time, so I can manually reivest my dividends as needed. This can work very well for someone just starting a Roth IRA since contributions are limited.

    Zecco will automatically reinvest, but they do not offer partial shares at this time.

    TD Ameritrade will reinvest and offers partial shares for a Roth IRA account.

    Zecco’s commission policy is subject to change of course and I have no benefit in promoting the company, or TD Ameritrade. I use TD Ameritrade for my brokerage account and formerly for my Roth IRA before transferring it to Zecco.

  5. I called TD Ameritrade on 9/2/08 and the customer rep told me that they don’t reinvest fractional dividend shares.

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