Dividend Payouts: Free Money for Investors
Managing Editor’s Note: Today’s article outlines how you can use a dividend reinvestment strategy to jump-start your income portfolio. If you follow Marc’s work in The Oxford Income Letter, you may be familiar with this technique… It’s the core idea behind his Compound Income Portfolio.
Already know the basics of dividend investing? Learn how you can turn that knowledge into a retirement business that can net you thousands every month – like clockwork – by clicking here.
It’s no secret: People love free stuff.
Whether it’s a book, magazine or T-shirt… getting something for free just makes people feel good.
And collecting “free money” may just be the best feeling of all.
That’s precisely what dividend payouts are for investors. And the chart below shows just how meaningful that “free money” can be to your portfolio.
Dividends are a great way to increase your income or jump-start your equity gains. Plus, they can help you reach your retirement goals.
I’m not saying your portfolio should include only dividend-paying stocks. But you should be holding a fair share of them.
Why? Because dividend-paying stocks can exponentially grow returns – especially if you’re reinvesting those dividend payouts.
Dividends can turn an underperforming stock into one of your portfolio’s biggest gainers.
We used Omega Healthcare Investors (NYSE: OHI) as an example for the chart above.
If you had purchased 100 shares of Omega back in February 2007, you would be sitting on a nice 10-year return.
Just the price change alone, during that time frame, would have given you an 80.93% gain. Plus, you would have received $1,686 in dividends.
In all, you would be sitting on a gain of 174.39%, or $3,146 (not including your initial investment).
That’s not a bad return.
But if you had reinvested those dividend payouts, you would instead be sitting on a 257.55% return, or $4,646.25 (not including your initial investment).
Now that would be a return worth bragging to your friends about.
Plus, reinvesting dividends allows you to continue to increase your holding. During this 10-year period, you would have purchased an additional 97 shares, basically doubling your initial holding.
And you did all of this without spending any money out of pocket. You just took advantage of the dividend payouts or “free money” that you received.
Even better… with dividend-paying stocks, a fall in stock price can actually be a good thing. It will let you reinvest the dividends at an even lower price to accrue even more shares.
Not surprisingly, these income-generating assets have become increasingly popular in recent years. That’s why our own Chief Income Strategist, Marc Lichtenfeld, has a monthly newsletter that focuses almost exclusively on them.
At the moment, his Oxford Income Letter subscribers are enjoying many double- and triple-digit gains… all thanks to this simple, low-risk strategy.
Just remember: The sooner you start reinvesting your dividends, the bigger your eventual return will be.