The financial news is fixated solely on price action when it comes to stock or equity ownership in a business. What did the price do relative to how it was priced yesterday, last year, etc.? What they don’t tell you and what many wealthy families know is Dividend Growth and Dividend Income can be even more important.
Here is an example, let’s say you buy a company that has a high amount of free cash flow and a history of paying and raising the dividend to shareholders. In our example you own 100,000 shares of company K and this year it pays you $1 per share in dividends, you would collect $100,000 in cash. Stop there, so far no mention of how the price acted day-to-day…..just cash in your pocket from the dividend. Now mentally fast forward to next year, company K raises the dividend amount by 10%. You would receive $110,000 in cash (100,000 shares x $1.10 dividend). If company K continues to raise the dividend 10% annually, in 5 years you have an annual income stream of $161,051, in 10 years you would have $259,374. Those of you with children know how fast 10 years goes by! Please note, still nothing about the price of the stock, just cash in your pocket. Let me ask you, if you had an asset throwing off a cash flow stream that goes up every year, how do you think the price of the company/stock/asset has performed? Dividend Growth is the way to build stealth wealth, and these companies exist. Some of them for decades. Why doesn’t anyone on the financial news ever talk about how they anticipate a dividend increase next year and the year after that and the year after that?
-Jason M. Iacobucci