The Power of Dividends

Why I Like 'Em and How I Track 'Em

The thing that I like best about dividends is that they grow on a regular basis. At least the stocks that I select to purchase tend to do. One of my most important stock selection criteria is a growing dividend. Each and every year, a company's dividend must have increased.

Why do I want this? So that my money can compound rapidly. Let me give you an example. On December 17, 2003 I made my first purchase of IGM Financial (IGM-TSX). When I bought it at $30.50, the company was paying a yearly dividend of $1.02 per share. This gave me a yield of 3.34%. Today, IGM Financial pays investors $1.29 per share. My average cost on these shares, after purchasing some more shares and reinvesting dividends, is $31.64. $1.29 / $31.46 = 4.08%. After only a couple of years, my dividend yield has gone from 3.34% to 4.08%. That is compounding at its finest. It will only get better as IGM continues to raise its dividend (I hope!!).

How do I track this? I have set up a little spreadsheet that does the calculations for me. It looks like this:

On the 'Purchase' side, I input all my original purchases, the price I bought the stock at and the dividend the stock was paying at the time. This gives me my then dividend yield. On the "Current Yield' side, I recalculate my buy price to take into account any additional purchases and dividend reinvestments and the current dividend to arrive at my new dividend yield. This provides me with a good picture of which way my dividends are going. You will see I have a fair way to go before I hit a 5% yield, but it is going up nonetheless. If you have any questions please do not hesitate to drop me an email or comment.

Transactions for the Week

July 22, 2005:
Stock: The Coca-Cola Co.
Transaction Type: Dividend Reinvestment
Amount: $10.22

Good Book:
To learn more about the power of an increasing dividend, check out Lowell Miller's, The Single Best Investment.