I pick dividend stocks for a living, but even I was surprised to learn that according to Wharton professor Jeremy Siegel, from 1871 to 2003, only 3% of the market's return came from capital gains of the original investment. That means 97% came from reinvesting dividends! Dividend reinvestment is a beast you want to harness.
To help you in the here-and-now, I've got six starting-point stocks coming up, but stay with me on the power of reinvesting for a moment.
The (re-invested) dividend difference
Since the idea of beginning your investing career back in 1871 is pretty ridiculous, consider that a mere $1,000 plunked into what was Philip Morris and is now Altria
And considering dividends? Had you just taken the dividends without reinvesting them, you'd have $64,000. But had you reinvested those dividends, your results would be mind-blowing: $146,000!
$1,000 to $146,000. In a stodgy, blue-chip, bellwether stock. If you wanted to do that the hard way -- through a non-dividend paying "growth" stock, you'd have to do better than 22% yearly! Any takers?
If you were to tire of amassing whopping dividend-reinvested returns (who would?), you can always switch to an income-only strategy. With Altria specifically, right now you could be taking in a nice $6,300 each year from your original $1,000 investment.
Six starting-point stocks
Where are today's blockbuster dividend payers? That's a million-dollar question, but it's one that could mean the difference between a plush or a parsimonious retirement. A starting point could be some dividend payers from the S&P 500 -- at least one study showed high dividend payers beat low payers by 3 percentage points annually. Doesn't sound huge, but it's darn big from a statistical standpoint. To put that kind of power in your portfolio, here are some ideas -- not recommendations per se, just ideas -- for consideration:
1. First Horizon
Pinnacle West Capital
Like to go beyond a starting point on your path to the power of reinvested dividends? If you'd like more detail -- or many more ideas -- I welcome you to try my Motley Fool Income Investor service on me, for 30 days. Click right here to activate your guest pass. Thus far, the service has beaten the market by 9 percentage points.