Key Points
You’ll be amazed to discover how a simple dividend reinvestment strategy enabled powerful portfolio growth over the past 25 years.
A carefully selected group of large-cap dividend achievers could help you build your wealth over time.
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After a quarter-century of dividend investing, it’s fair to say that I’ve learned a thing or two. For one thing, large-cap U.S. companies that pay consistent dividends can provide amazing long-term returns to investors. Furthermore, the returns can grow even faster when you reinvest the dividends.
It’s a comforting feeling to earn money while you sleep with dividend stocks. However, I’ll admit that I didn’t fully appreciate the wealth-building power of dividend reinvestment back in the year 2000.
Yet, after 25 years of successful dividend investing, I have evolved from a beginner to a true believer. Right now, I’d like to share with you my handpicked selection of dividend stock achievers that helped me grow my account and will likely mint new millionaires in the coming years.
Coca-Cola (KO)
Even though I wasn’t a dividend investing expert yet in 2000, I knew that Berkshire Hathaway (NYSE:BRK-B) CEO Warren Buffett liked to invest in Coca-Cola (NYSE:KO) stock. Buffett is an absolute legend in the investing community, so I figured that I should probably buy and hold some Coca-Cola shares and reinvest the dividends.
That turned out to be one of the best financial decisions I ever made. Mind you, KO stock isn’t the fastest-moving stock in the world. It tends to grow slowly, but at the same time, Coca-Cola pays out reliable dividend distributions quarter after quarter.
So, I applied a little bit of due diligence and used a historical dividend reinvestment calculator to determine the past 25-year returns of KO stock. Consequently, I found that buying and holding Coca-Cola stock from the beginning of 2000 until today, without reinvesting the dividends, turned a $10,000 investment into $34,153.02 for a total return of 241.79%.
That’s nothing to sneeze at, but now let’s see how much the magic of compounding would have improved that result. Over the same time frame, using a consistent dividend reinvestment strategy with Coca-Cola stock turned $10,000 into $49,188.23 for a total return of 391.45%.
Clearly, Buffett had the right idea with KO stock. Coca-Cola is a rock-solid company that pays reliable dividends, and currently the company offers a forward annual dividend yield of 2.96%. With that in mind, you can choose to be like Buffett and accumulate life-changing wealth by owning shares of Coca-Cola.
Consolidated Edison (ED)
Can a utilities company electrify your portfolio with outstanding returns? It’s definitely possible, and I’ve deployed a dividend reinvestment strategy with a well-known utilities stock for maximum effect.
Even among high-yielding utilities stocks, Consolidated Edison (NYSE:ED) stock stands out as a heavy hitter. This is a highly established electric company that I’ve counted on to deliver quarterly distributions time and again.
Truly, ED stock has been the best friend of dividend re-investors over the past 25 years. From January 3, 2000 until today, Consolidated Edison stock has turned a $10,000 stake into $49,071.16 without reinvesting the dividends, representing a gain of 390.13% — but that’s not the end of the story.
Here’s what really turned me into a believer. Applying a similar buy-and-hold strategy but also reinvesting the dividends during the past 25 years would have turned $10,000 worth of ED shares into $92,851.62 for a whopping 828.1% total return.
That’s close to twice the gains from just buying and holding Consolidated Edison stock without reinvesting the distributions. You can still try out this strategy today as Consolidated Edison stock’s forward annual dividend yield is a hefty 3.38%.
More Picks for Dividend Believers
By now, you should be convinced that dividend distributions aren’t meant to be spent; they’re meant to be invested back into more shares. For a quarter-century, I’ve learned and earned through a simple plan of consistent dividend reinvestment, which your broker may be able to automate so you won’t even have to think about it.
Of course, Coca-Cola and Consolidated Edison aren’t the only dividend achievers that have paid me since the year 2000. Here are some other beginner-to-believer picks that continue to reward loyal shareholders with good yield:
Exxon Mobil (NYSE:XOM): 518.33% total return since January 3, 2000 (assuming all dividends were reinvested); current forward annual dividend yield of 3.62%
McDonald’s (NYSE:MCD): 1,339.31% total return; current yield of 2.29%
Home Depot (NYSE:HD): 865.43% total return; current yield of 2.46%
Johnson & Johnson (NYSE:JNJ): 519.69% total return; current yield of 3.5%
If you missed out on these massive returns over the past 25 years, don’t lost hope. There are still more gains to come if you’re invested in carefully chosen large-cap dividend payers. Feel free to steal my strategy (or more accurately, Buffett’s strategy) and try out a dividend reinvestment plan for potentially powerful long-term results.
The post I have invested in dividends for 25 years—These picks turned me from a beginner into a believer appeared first on 24/7 Wall St..
