Albert Einstein reputedly said that "The power of compounding is the eighth wonder of the world." This relates to dividend stocks and how they work. If an ETF like the Schwab U.S. Dividend ETF (SCHD -0.61%) pays you a dividend, you can automatically reinvest that, which increases your share count. As that security you are invested in increases its annual payout and you have more shares, you generate more dividend income.

Check out today's video, where I explain in more detail.

*Stock prices used were end-of-day prices of April 7, 2023. The video was published on April 11, 2023.