Buffett’s Best Lesson
Warren Buffet is rich for a reason. He’s smart, savvy and never wavers from one simple investment strategy.
Do you like easy money? Today I show you how to bank it like Buffett does.
Read on below…
Compound Dividends: It’s the Real Thing
In my last Wealth Watch article (included below) I reported too many Americans sadly have too little socked away for retirement.
If you don’t want to practice the greeting, “Welcome to Walmart” in your golden years here’s some good news…
There’s still time to catch up.
The best strategy I know for catching up is to focus on boosting your savings now by investing your money in high-quality dividend paying stocks.
Then you can use the magic of compound dividends to provide a reliable and growing income stream that funds the retirement of your dreams.
A Case Study: Coca-Cola
Here’s a great example using one of Warren Buffett’s favorite stocks: Coca-Cola (NYSE: KO).
Of course you can’t turn back the clock to the 1980s and scoop up a billion dollars in KO shares like the Oracle of Omaha did.
But you don’t have to be a billionaire to profit from the magic of compounding dividends either.
The math shows us compounding is plenty powerful even for small amounts of money and shorter periods of time.
See the chart below:
If you had invested a modest sum of only $5,000 in KO shares 10 years ago, it would have been enough cash to buy about 100 shares at their pre-split $50 per share price in 2008.
Then after a 2-for-1 split in 2012, you would have 200 shares of KO, worth a total value of about $8,600 today!
That’s a not-too-shabby $3,600 gain. And roughly two-thirds of that profit, or $2,350, came from cash dividends alone!
I’m not just pulling these numbers out of thin air mind you. Several market data services including Yahoo Finance provide stock price and dividend data.
Better yet, most large companies including Coke offer investment and dividend calculators right on the “investors” section of their websites.
Find a stock you’re interested in and check it out for yourself.
How To Amplify Your Dividends for Max Cash
Now, I want to show you how you can amplify your upside profit potential even more, thanks to the magic of compound dividends.
All you need to do is simply reinvest the dividends you earn from your shares in more KO stock over time.
Using KO as the case example, your original $5,000 stake would grow to about $11,000 today.
A $6,000 profit!
That’s two-thirds more money in your retirement account. All by following the one simple step of compounding your dividends.
No doubt, many investors turned up their nose at Coke’s 2.8% dividend yield back in 2008 as not rich enough.
But if you staked your claim in KO 10 years ago, you would be cashing dividend checks of $350 this year alone, thanks to acquiring about 45 additional shares over the years from reinvesting your dividends.
That’s a rich yield of 7% based on your original $5,000 investment!
And that’s just the past 10 years. Let’s say you retire today, but you’re happy with your KO purchase a decade ago and are going to let it ride another 10 years.
A decade from now you would own about 316 KO shares worth $23,800 – roughly doubling your money again!
Plus, you’d be getting over $800 in yearly dividends. That’s a whopping 16% yield based on your original cost of $5,000.
How did I come up with these numbers?
It’s all based on data from the website: DRIP (Dividend Reinvestment Plan) Calculator, plus readily available market data. In fact, there are dozens of these calculators online you can use to put together all kinds of “what-if” scenarios for your money. And they’re all based on actual dividend and other market data.
In my next article on how to retire on your terms, I’ll reveal three of my favorite high-quality dividend stocks you need to own.
Plus, I’ll also show you how to use readily available data to do your own real-time analysis and return projections.
We’ll talk again Monday.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
Editor’s note: On the path to a wealthy retirement you must grab opportunity when it strikes. Hesitation means missing out.