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 the short term add up to massive divergence over decades. In the end, the biggest winners don't always deliver the fattest share-price returns.
Let's have a look at materials technology giant 3M (NYSE:MMM). The maker of everything from Post-It notes to industrial air-filters has been a good investment over the last two decades, just about doubling the returns of its peers on the Dow Jones Industrial Average (DJINDICES:^DJI) index:
But here's the fun part of the 3M story: The company has relentlessly increased its dividend payouts in the long run. The 2.5% yield you see today is the product of ballooning quarterly checks -- more than enough to keep pace with the stock's rising share prices.
Those blue stair-steps are a fantastic sign to income investors. Even when 3M's stock plunged during the global financial crisis of 2008, this company simply doubled down on another dividend boost. There's just no stopping this flow of cash into the common investor's pockets.
How big of a difference can these payouts make? I'm glad you asked:
That's right -- a 133% gain nearly doubles again to a 235% leap. That's 3.5 times the Dow's long-term return. If you include dividends in the Dow's total returns via an index-tracking vehicle such as the SPDR Dow Jones ETF fund, you still only manage to equal 3M's naked share-price gains. The Minnesotan giant rewards its owners more richly than most of its Dow compatriots.