I feel like I have been talking about this a lot lately, but I was entering some dividend payments I recently received into Microsoft Money and say the dramatic effect of reinvesting dividend payments. I am going to take one of my stocks as an example and show you what has happened over time.
The following chart shows the various dividend payments I have received from one of my best holdings – RBC Royal Bank (RY.to). You will notice that over time the dividends that I receive has been shooting up. This is because each and time I receive a dividend payment from the company, I plow that payment into more and more shares. The effect this has, even over a relatively short period time, is huge. The big jump in the early years was because I made a couple of purchases of shares as I built my position, but since August of 2004 the increases has all been because of dividend reinvestment.
This is very powerful stuff. If you trend line this out into the future, it becomes clear that the amount of money that RBC Royal Bank pays me will be quite substantial. The cool thing is I don’t need to do anything – it all works automatically for me.