DripCal.... It simply can not be right.......

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What is DRIP (Dividend Reinvestment)? DRIP is a process for reinvesting your stock dividends into buying more shares of your stock. Instead of taking cash, you reinvest the dividends, so that on the next dividend payout, you will have more shares of stock, that will pay you more dividends. When you “DRIP” for a long time, you create a what is known as “Dividend Snowball” effect.

For example: If you invest $10,000 into a company paying 8% dividend (assuming dividend does not decrease in the future), and assuming an annual increase in dividends of 4%, and share price will increase an average of 5% per year, and you DRIP or reinvest ALL your dividends, in 10 years, your initial $10K will turn into $32,469.

This equals a compound growth (CAGR) of 224.69% or 22.469% per year! If you continue holding this same position for 20 years, your total growth will be 937.1% or 46.86% per year, and your $10,000 investment will turn into $103,710 What are the risks with DRIP?

As with any investment, risks are limitless, and you could end up losing your entire investment. This however is not very likely, as most companies do not go bankrupt. There are other risks, such as company cutting its dividends. This is much more common. However, there are companies known as Dividend Kings and Dividend Aristocrats, which are known to respectively increase their dividends for at least 50 and 25 years in a row! When investing in Dividend Kings and Dividend Aristocrats, your risks are historically much lower (but still are real). Buying HIGH Yield (Low Growth) vs. LOW Yield (High Growth) stocks: Here we cannot tell you which one is better. But a simple calculation for SCHD stock (high dividend growth ETF based on S&P500 Dividends Index), which has historically increased their dividends by 12.82% over past 10 years and increased in share price by 11.8% over same period, it would take at least 10 years to catch up to an 8% Dividend Yield stock (if same price appreciation and dividend increases continue).

However, by year 20, it is estimated to grow from $10,000 to $162,044, which beats our “hypothetical” 8% yield stock by $48,334 in total returns or about 55%!

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