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.
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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
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Portfolio Totals
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...
9 comments:
Damn right, MG! I'm going to show my employer this post and demand that they match the raise!
The other thing left unsaid is that you got that raise in increments over the 10 years in current dollars -- you didn't have to wait until some unspecified point in the future to take your cumulative profit by selling the stocks, with attendant inflationary effects. This is an often ignored benefit of dividend paying stocks (whether you take the dividend as cash or re-invest it).
Great post! Makes me want to go out and buy more dividend stocks!
Goes to show if you work at any of these dividend-paying companies, you are better off subscribing to the employee stock plan than asking for a raise!
Thanks for the comments.
Good luck with that negotiation FG.
HOW MUCH STOCK DO YOU HAVE TO BUY TO GET A RETURN IT NOT WORTH IT
I was very happy to see your article and what a "lump sum" investment in 1997 would figure out to, as the "average annual %"
I started investing in JNJ in 1994, putting in some money each year, what ever I could afford and reinvesting all dividends through JNJ's DRIP.
Someone once told me that I was getting less than 2.5% a year dividend from JNJ and that I should switch into bonds that pay 5% and use "Laddering?".
My GUT feel has always been, that 2.5% with an annual increase, over time would beat 5% a year, in the long run. But, because I've invested different amounts every year, instead of a "lump sum", I find it difficult to figure out my actual annual % of return and to compare it against Bonds.
Is there an easy way to set up a spreadsheet to do this?
anon, compounding is a magical thing.
I have a spreadsheet that I use to calculate weighted returns as you say. I could email it to you.
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