Recently my wife passed her hire date anniversary with her employer and was up for a raise in her salary. This got me thinking about raises in general. Others may have differing opinions on the matter, however I usually think of an above average raise as being in the 5% or greater range. Considering inflation usually runs about 2%, we could translate a 5% raise into about a 3% raise in real dollar terms... nothing to write home about.
This brings me to the fact that the power of dividend growth can sometimes be astonishing. If one invests in large cap companies that raise their dividend regularly, they'll usually give you a raise in that dividend every year without you having to lift a finger.
Let's look at a hypothetical example of a small portfolio of a few companies across a few sectors in order to see what type of raise you could have expected over the last while: (The figures are 1997 vs. 2007 - a 10 year term of ownership)
Johnson & Johnson - 100 shares 1997 paid you $44 / 2007 = $166
Procter & Gamble - 100 shares 1997 paid you $45 / 2007 = $140
Royal Bank of Canada - 100 shares 1997 paid you $40 / 2007 = $184
General Electric - 100 shares 1997 paid you $35 / 2007 = $112
McDonald's Corp. - 100 shares 1997 paid you $16.50 / 2007 = $100
In 1997 100 shares paid you $180 in dividends and now the same 100 shares (2007) pay you $702.
This represents an average yearly raise of about 14.5% every year....maybe worth at least an email home...