Here's where it gets fun. Let's say an investor bought $10,000 of Welltower stock 45 years ago and reinvested all of the dividends she received over the years. How much would her investment be worth today? $500,000? A million dollars, maybe? Actually, this investment would have ballooned to $6.8 million thanks to compounding. Imagine if this investor didn't stop with the initial $10,000 investment and had added to it over time -- we could be talking about a return well into the eight-figure range.
Now, keep in mind that if you had actually made this investment, the performance wouldn't have been nearly as steady as the line in this chart. Like any other stock, Welltower has experienced its ups and downs over the years. However, as long-term investors, we're far less interested in a stock's performance in any short time period than we are in its potential to deliver market-beating performance over time.
As a final point, dividend reinvestment doesn't need to cost you a dime. Most stocks can be enrolled in a dividend reinvestment plan (DRIP) either through your brokerage or directly through the company. When enrolled, any dividends you receive will be used to buy additional shares, even if the purchase results in fractional shares. If you get a $60 dividend payment and the stock is trading for $40, you'll get 1.5 shares added to your account -- and without any commission whatsoever. For these reasons, it's important to do this with every dividend stock you own.
Invest early and often, and let your dividends ride
The main takeaway is that time is a dividend investor's greatest ally. Since the power of compound returns increases over longer periods of time, now is the most critical time to get started. So, pick your high-quality dividend stocks, be sure to enroll them in a DRIP through your brokerage, and start investing as soon as you can. If you do that, you'll see firsthand just how powerful those seemingly small dividends can be.
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*"Look Who's on Top Now" appeared in The Wall Street Journal in Aug. 2013, which references Hulbert's rankings of the best-performing stock-picking newsletters over a 5-year period from 2008-2013.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.