The wealth-building power of compound interest will never cease to amaze me.
It's a story of patience and attention to detail, where small differences in short time scales add up to massive divergence over decades. And in the end, the biggest winners don't always deliver the fattest share price returns.
Take oil giant ExxonMobil (XOM 1.37%). The company has always paid a nice little dividend, but never the double-digit yields some companies might sport. I mean, would you be impressed by this dividend history?
Sure, there's a steady rise in payouts but the yield never ever topped 3%. Surely you'd do better with a more generous income-generator like regional telecoms Windstream (WIN +0.00%) or Frontier Communications (FTR +0.00%), both of which boast dividend yields north of 8% today.
Right?
As it turns out, the steady rise matters more than a temporarily terrific payout. This is how Exxon's rock-solid payouts changed the game for shareholders over the last 15 years:
A triple turned into a four-bagger. And the difference only grows larger over time. Longtime Exxon owners have enjoyed a 2,300% return in three decades, based on straight-up price appreciation. But those modest dividends really do add up: With dividends reinvested, the 30-year return more than doubles to 7,400%.
Could Windstream and Frontier copy that chart over the next 10, 20, and 30 years? Maybe so, but I wouldn't bet my house on it.
Exxon is a longtime Dow Jones Industrial Average (^DJI +0.02%) component, stretching all the way back to 1976. Like the high-yielding telecoms, it operates in a mature industry that throws off predictable piles of cash every year. But it's an established giant in a field that's not going away anytime soon. The stock has "Rock Solid" tattooed on its forehead.
Frontier and Windstream, on the other hand, struggle to stay relevant as smaller players in a rapidly changing industry. Those fantastic yields could well dry up as the communications industry grows ever more digital, or the companies could cease to exist altogether as the industry consolidates.
But Exxon is staying put until the last oil well runs dry, which is still decades from now. Stability matters more than short-term fireworks.
