Sometimes swinging for the fences isn’t the best idea. It would be nice to get rich quick over night, but the reality is the odds are heavily stacked against you. For a moment, let’s think about the long-term; 10 or 20 years. Over that time period you want to grow your portfolio’s value and create a foundation that is going to reap larger rewards in the future.
Often times some of the best investing ideas are just around the corner. Big stable companies with a proven track records and a history of dividend increases often prove to be a simple recipe for preserving and growing wealth.
What great investment is right around the corner? Most of us live not too far from a gas station that is owned by a very large and stable company. These companies have more stability than many governments around the world. They provide a product that the world needs to run and they have the excessive amounts of capital needed to continue development and delivery.
Are you familiar with the company named Chevron (CVX)? You’ve probably seen a Chevron gas station or two and you obviously know they’re involved with energy products. The company’s market cap is over 200 billion. CVX’s market cap is larger than companies like Johnson & Johnson and Proctor & Gamble.
CVX currently yields 3.2% annually from its dividend distributions. On top of that the company has shown a commitment of maintaining and growing their dividend payments. In 1990 the company paid a quarterly dividend of .175 cents. In 2000 the company paid a quarterly dividend of .325 cents. In 2010 the company started paying a quarterly dividend of .72 cents. Today the quarterly dividend is at .78 cents.
If you had bought Chevron in the early ‘90s, you probably would have entered in to your position in the mid to high teens. For example, let’s say we bought 625 shares at $16 for an initial investment of $10,000. At the time we would earn .70 cents in dividends annually (.175 x 4 = .70), which would equate to roughly a 4.4% yield (.7 / $16 = 4.4375%).
Now, let’s fast forward 20 years. We assume you’re still holding the 625 shares and have only realized gains from the dividends you’ve collected. Today you’re earning .72 per quarter, which equates to $2.88 in dividends annually. Based on your original investment, your dividend yield is now 18% ($2.88 / $16 = 18%)!
Eighteen percent is impressive enough, but let’s look at one more item that’s relevant before we end. We’re assuming that you’re holding this stock in perpetuity, so we won’t talk about stock price appreciation. Instead, let’s explore how much you would have gained from the sum of all your dividend distributions.
From the start of 1990 until today you would have earned a total of $32.3115 in dividends per share. Multiply you total dividends by your initial 625 shares and you end up with $20,194.69 in dividends. That’s comes to on average over a $1,000 in dividend payments annually for a 20 year period. What did you have to do for this return to fall into your lap? You did nothing, except invest $10,000.
Do not sleep on companies that are boring. Some of them have proven track records of increasing dividend payments, appreciating in price and, at the end of the day, paying off handsomely.
Disclosure: No Position