If I told you that you could be earning 15% per year on your investment, in dividends, would you be interested? How about 30%? Don't scoff -- it can be done. The trick is buying tomorrow's dividends today.
Let me explain
For example, take a healthy company with a strong history of paying and raising dividends. Let's use Sysco
With the current yield at 2.1% (based on an annual dividend of $0.76), that means that if you bought 100 shares today, for a little less than $3,600, you could expect to receive $76 in dividends each year.
Not too impressive, huh?
Consider, however, that this amount is very likely to keep rising. Let's assume that the dividend increases 12% per year over the next decade. If it does, in 10 years, the annual dividend will be $2.36. So your original $3,600 investment will be kicking out $236 to you each year -- that's an effective yield of 7%! Fast-forward another decade. The $2.36 will have become $7.33, paying you $733 per year on your $3,600 investment -- that's now an effective yield of 20%.
Believe it or not
That's not an extreme example. Many terrific companies pay generous dividends and hike them significantly. If you buy shares of some of these companies today and hang on for the long haul, they can effectively be paying you dividend yields greater than 20% by the time you retire.
Here's another way to look at it. If you bought shares of Pfizer
Get great yields
The key, as you may have noticed, is finding companies that have the fiscal strength to raise their dividend year after year. And they're out there. Over the past 10 years, for example, Walgreen
Past results never guarantee future results, of course, but they can give you an idea of what you might reasonably expect. Intel's number, for example, shows a company ramping up its dividend from nothing and then nearly nothing to a respectable yield today (recently 1.9%). In other words, I wouldn't expect the company to keep hiking at a 32% annual clip.
Still, there are fortunes to be made by carefully buying tomorrow's whopping yields today.
If you'd like someone else to do most of the work in selecting the right companies for you, I invite you to check out (for free) our Motley Fool Income Investor dividend investing service. We'd love to introduce you to an even more promising group of dividend payers -- picks that were recently beating the market by some seven percentage points. Click here to learn more.
Longtime Fool contributor Selena Maranjian owns shares of Pfizer and Home Depot. Sysco and Bank of America are Income Investor recommendations. Home Depot, Pfizer, and Intel are Inside Value picks. The Motley Fool isFools writing for Fools.