Showing posts with label reinvesting dividend. Show all posts
Showing posts with label reinvesting dividend. Show all posts

Saturday 21 September 2019

The Possibility of Reinvesting More Capital in companies with High Returns on Capital

Bear in mind that the potential for companies with high returns on capital to reinvest a lot of capital are limited, since they tend not be be very capital intensive (e.g. Nestle Malaysia and Dutch Lady).

Furthermore, the market will probably be correctly pricing such gems which are capable of obtaining high returns over time, meaning we must wait for the right moment to acquire them at a reasonable price, because they are rarely gong to come cheap.

If some of these companies with high returns on capital in attractive sectors also offer a certain amount of growth, facilitating reinvestment of capital, then we are looking at a gem, with the added benefit of being coherent with our long term investment philosophy.

If a company can reinvest with a 20% return on investment over the next 20 years and we are able to buy the stock at a reasonable price, then the return on our investment will be close to this annual 20% over 20 years.

Saturday 29 April 2017

Return Characteristics of Equity Securities

The two main sources of an equity security's total return are:

  • Capital gains from price appreciation
  • Dividend income
The total return on non-dividend paying stocks only consists of capital gains.

Investors in depository receipts and foreign shares also incur foreign exchange gains (or losses).

Another source of return arises from the compounding effects of reinvested dividends.

Thursday 14 May 2015

Why Dividend Reinvestment Is a Must.

Here's How Powerful Dividend Reinvestment Is to Your Portfolio

At Money Morning, we're big proponents of dividend reinvestment. It's a strategy that will help you amass tremendous wealth over time.
Our Chief Investment Strategist Keith Fitz-Gerald showed investors just how valuable dividend reinvestment is to your portfolio using a single example and a stunning graphic to illustrate his point.
Here's Fitz-Gerald on the power of dividend reinvestment…

Why Dividend Reinvestment Is a Must

Reinvesting dividends is the practice of buying additional shares of a stock using the dividends themselves to pay for your purchase. It results in long-term compounding, and that's key to building a fortune.
Let's use Altria Group Inc. (NYSE: MO), a high-yield dividend stock, as an example. Last September, Altria boosted its dividend for the 48th time in the last 45 years. Shares yield 4.11%.
While that's fabulous for any investor, some have made out like bandits. Depending on when they originally purchased shares, they've had the chance to receive more in dividends than they originally paid for the stock itself. Which means, practically speaking, they own the stock for "free."
Over time, the difference between simple appreciation and the effects of continual dividend reinvestment is jaw-dropping.
dividend reinvestmentHad in you invested in MO stock on Jan. 2, 1970, and left that money alone until the close of trading on Sept. 2, 2014, your return would be 431,800%, adjusted for dividends and stock splits.
Many companies even offer dividend reinvestment plans (DRIPs) as a means for investors to purchase shares over time. Investors can start with a small number of shares and, instead of receiving dividends as cash, reinvest continually in the company's stock.
This achieves two things. 1) It puts the plan on autopilot, and 2) it helps you maximize the effectiveness of dollar-cost averaging over time. You spread your purchases out and never have to lift a finger to do so.
The DRIP strategy isn't a get-rich-quick tactic. But for investors with an eye toward the long term, its power is unrivaled in transforming modest investments into mega-returns down the road.

http://moneymorning.com/2015/03/27/heres-how-powerful-dividend-reinvestment-is-to-your-portfolio/

Sunday 15 July 2012

Five Basic Fundamental Investing Principles



History has demonstrated that there are five basic principles that 
you should follow if you want to be truly successful.


Invest Regularly in the Stock Market

Reinvest all of Your Profits and Dividends

Invest for the Long Term

Invest Only in Good Quality Growth Companies

Diversify Your Portfolio

Saturday 23 June 2012

Financial Planning and Reinvesting Your Passive Income




Reinvest money from passive income





My Cash Flow Framework



Cash Flow Diagram


HAVE YOU STARTED YOUR JOURNEY TOWARDS FINANCIAL FREEDOM?


No, what is financial freedom?
  7 (6%)
No, I don't intend to start my journey.
  1 (0%)
No, but I am preparing to start my journey.
  26 (25%)
Yes, I have just started my journey.
  40 (39%)
Yes, I am half-way in my journey.
  17 (16%)
Yes, I have achieved financial freedom already.
  10 (9%)



Source:  




Monday 18 June 2012

The Impact of Reinvesting Dividends


The chart shows the value over time of a $100 investment made in the S&P 500 in 1925 with dividends reinvested vs. dividends not reinvested.  It appears in the book pretty much as shown below.

Dividends reinvested vs. not reinvested

It makes the difference between reinvesting dividends (the top line) and not reinvesting dividends (the bottom line) look pretty impresive, but it also makes it look like there isn't much difference until 50 years or so after the initial investment.  That's because the vertical scale is linear.

A more typical way to show compound growth such as this would be to use a semi-log chart, as shown next.  (A somewhat less serious problem with the chart above is that the horizontal scale distorts the amount of time at the beginning and end of the data.)

Dividends reinvested vs. dividends not reinvested (log scale)

  1. All that's really going on here is the difference between about 10.5% compound annualized growth (dividends reinvested, on the top line) and 5.7% compound annualized growth (dividends not reinvested, on the bottom line). 
  2.  
  3. The semi-log chart (with time properly represented on the horizontal scale) makes it clear that there is constant percentage growth in the value of the investment regardless of whether or not dividends are reinvested.  That's because the lines are straight (remember that straight lines on the semi-log chart indicate consistent compound growth).         
  4. It also shows more clearly that reinvestment of dividends 
  • affects the investment value right from the beginning and
    •  
  • provides a consistently increasing benefit as more and more time passes.