Investing in stocks that continually increase their dividends has the dramatic effect of consistently giving investors a raise each and every year. I have kept track of my own personal dividend income since really focusing on dividend growth as a strategy in 2005. Shooting forward almost 3 years and my dividend income has gone from $727 per year to its current $1320 per year.
The growth in this dividend income has come from two sources. The first and most obvious is that I have continued to add dividend growth stocks to my portfolio. Every time that I add a stock the resulting income can be quite substantial. For example when I added Coca-Cola in March 2005 I immediately added almost $30 in dividend income per year to my earnings.
The second and less obvious source of the increase in dividend income is the dividend increases that my dividend stocks have done every year. This is metric that can move quite slowly at first, sometimes feeling like you are getting nowhere. However, over time as dividends are reinvested into more stock and the dividends are raised then the results can be quite dramatic. For example, in June 2006 I bought 16.4821 shares of Wal-Mart when it was throwing off $0.67 per share in dividends. Today, with no additional money added to the stock I now hold 16.9761 shares and the yearly dividend payment from the company is $0.95 per share. My hypothesis is that in 20 years from now the yearly dividends will have risen dramatically and my reinvested shares will be throwing off a very substantial sum of money – enough to retire on.
To create a reminder of the power of my strategy during times when dividend stocks are not performing as well in the market, I have created a quick and dirty chart that shows the trend in my dividend income. Every once in a while I create a new data point with my current dividend income and inevitably it shows my income rising. Here is that chart:
The power of dividends is pretty obvious!