Dividend Growth Investing While Young
"Compounding is the 8Th Wonder of the World
Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.” Over time, your dividends will earn more dividends. Then your dividends that were earned by prior dividends will earn you more dividends. It seems simple, but it is surprisingly hard to wrap your head around just how powerful compounding is till you play some numbers and graphs. We will do that here.




Take Lowe’s ($LOW) for example. For the last ten years, the stock’s average dividend yield has hovered around 2%. 10 years ago today, one share of $LOW cost you $26.98. Let’s assume an initial investment of $10,000. Using Sharesight, I can back-test the performance of that investment with dividends reinvested and the result is shocking.
From June 2012 to June 2022, the stock price moved from $26.98 to $186.33. In 10 years, the stock price grew by almost 6x. Add to that appreciation, 10 years of growth and compounding dividends and your position would have grown from $9,982.60 on June 11th, 2012 to $64,920.20 on June 10th, 2022.

Meanwhile, your quarterly dividend payout began at $59.20 and grew to $296 which yielded you a total dividend payout of $5,960.70. With just 10 years of holding, your dividend payout grew by more than 5x and yielded you a total of $5,960.70.

The magical variable in this formula is time. In 10 short years, you can see in the graph below that the dividend payouts start to resemble an exponential curve. If I had back tested for 20 years instead of 10 years, the dividend would have grown from $4.24 to $339.20 and that curve would be more pronounced. This simply goes to show why it is a good idea for dividend growth investors to start early. The younger you are the more time you have available to you for compounding."


This was a snippet from a new article I wrote titled Dividend Growth Investing While Young.

Give it a read if you'd like more information on why the common adage that young investors should take on more risk than older investors and pursue high-growth investment strategies is flawed.
Irish Born Investor's avatar
I really like the idea of dividend growth but the taxation system in Ireland is pretty bad for Dividends so I’m not sure if it defeats the purpose.
Joey Hirendernath's avatar
@irish Oh that's something I was not aware of. Is there no equivalent of an ISA ?
Stock Metal Investment's avatar
@irish how bad is it in ireland? In germany we pay 25% taxes on dividends, BUT if there are no proper contracts between countries then its A LOT higher. My canadian dividends have 35% tax and my swedish ones have 40%. That's brutal. Luckily these candian and swedish dividends are very small (under 1% yield), but still....forces you into US stocks pretty much over here (and a few other countries).
Irish Born Investor's avatar
@joeyhirendernath nope, nothing. Maybe via a pension you could do it but still not ideal. Ireland is just not setup for market investing.
Irish Born Investor's avatar
@stonkmetal it’s confusing to be honest there’s withholding taxes I believe and then you are taxed at your income rate so could be anywhere from 30% to 40% I think. @emf could probably give an accurate answer.
Stock Metal Investment's avatar
@irish okay that sounds much worse than German laws :(
Leon's avatar
@stonkmetal you can get some of the foreign taxes back, so it reduces to 25%.But it‘s a long process and often the dividends are too low to do the work
Stock Metal Investment's avatar
@mavix Yeah, it is a long and annoying process. I don't have the kind of stocks with high yields anyways, so I'm not too bothered. Definitely worth mentioning though, thanks.
Stock Metal Investment's avatar
Dividend growth investing is a good option. The only thing I don't understand is young people buying high yielders.
Dividend Dollars's avatar
@stonkmetal yield is attractive for sure, younger folks may not yet know that you shouldn’t chase it!
Dissecting the Markets's avatar
Thoughts on heavily investing in $QYLD while young and continuously reinvesting the dividends? Considering how rich the dividend payouts are, wouldn't one see a higher dividend income in the end from that strategy?
Scoreboard Investor's avatar
@dissectmarkets I’ve thought about doing this. Have not looked too far into it, though
Scoreboard Investor's avatar
Thanks for sharing. I’ve really been enjoying the additional articles you’ve been writing in addition to your weekly portfolio update!

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