3 Tables Every Dividend Investor Must Know

I just finished reading Jeremy Siegel’s 2005 book, “The Future for Investors.”  The book was an interesting and informative look at how the aging of the population in the developed world (baby boomers in particular) will affect the future of investing.  I picked it up at the local library, and would recommend you do the same. 

In the book were three very important charts for dividend growth investors.  The first chart is the “Break Even” chart.  This chart shows how many years it will take for a stock with a dividend yield of x (x axis), and a price decline of y (y axis), to recoup the initial investment.

	1%	2%	3%	4%	5%	6%	7%	8%	9%	10%
10%	95.8	48.4	32.6	24.7	20	16.8	14.5	12.9	11.5	10.5
20%	90.3	45.6	30.8	23.3	18.9	15.9	13.8	12.2	10.9	9.9
30%	84.2	42.6	28.8	21.8	17.7	14.9	12.9	11.4	10.3	9.3
40%	77.6	39.3	26.6	20.2	16.3	13.8	12	10.6	9.5	8.7
50%	70.4	35.7	24.1	18.4	14.9	12.6	10.9	9.7	8.7	8
60%	62.2	31.6	21.4	16.3	13.3	11.2	9.8	8.7	7.8	7.2
70%	52.7	26.9	18.3	14	11.4	9.7	8.5	7.6	6.8	6.3
80%	41.4	21.3	14.6	11.2	9.2	7.9	6.9	6.2	5.6	5.2

So if for example you buy stock XYZ with a 5% yield, and the price declines by 50%, it will take 14.9 years until the reinvested dividends buy back enough shares to offset the price decrease.  As you can see, the higher the yield, and the larger the price decrease, the faster you break even.

This second chart is called the “Return Accelerator.”  It shows the average annual return investors will receive if the previously mentioned stock returns to its original share price.

	1%	2%	3%	4%	5%	6%	7%	8%	9%	10%
10%	10.12%	10.24%	10.36%	10.47%	10.58%	10.69%	10.80%	10.91%	11.01%	11.11%
20%	10.27%	10.54%	10.80%	11.06%	11.31%	11.56%	11.80%	12.04%	12.27%	12.50%
30%	10.47%	10.92%	11.37%	11.81%	12.24%	12.67%	13.08%	13.49%	13.89%	14.29%
40%	10.73%	11.44%	12.14%	12.82%	13.49%	14.15%	14.80%	15.43%	16.06%	16.67%
50%	11.09%	12.16%	13.20%	14.23%	15.24%	16.23%	17.20%	18.15%	19.08%	20.00%
60%	11.63%	13.24%	14.81%	16.35%	17.86%	19.34%	20.79%	22.22%	23.62%	25.00%
70%	12.54%	15.03%	17.48%	19.87%	22.22%	24.53%	26.79%	29.01%	31.19%	33.33%
80%	14.36%	18.63%	22.82%	26.92%	30.95%	34.91%	38.79%	42.59%	46.33%	50.00%

So, assuming we have held on to stock XYZ for 14.9 years, it now returns to its original price.  The average annual return over those 14.9 years is 15.24%. 

These charts are very powerful.  They show the power of reinvesting dividends over time, one of the most powerful investment available. These charts show why the past decade has been good to dividend investors.  As prices have been stagnant, investors have been accumulating more shares at better prices.  Once we hit the next boom cycle, they will see some great returns. 

This last chart is just for motivational purposes.  Siegel analyzed the original S&P 500 members and charted their returns from 1957-2003.  These are the top performers, and the accumulation of $1000 invested in 1957 with dividends reinvested. 

Rank	2003 Name	Accumulation of $1000	Annual Return
1	Phillip Morris	4,626,402	19.75%
2	Abbot Labs	1,281,335	16.51%
3	Bristol-Myers Squibb	1,209,445	16.36%
4	Tootise Roll Ind.	1,090,955	16.11%
5	Pfizer	1,054,823	16.03%
6	Coca Cola	1,051,646	16.02%
7	Merck	1,003,410	15.90%
8	PepsiCo	866,068	15.54%
9	Colgate Palmolive	761,163	15.22%
10	Crane	736,796	15.14%
11	H.J. Heinz	635,988	14.78%
12	Wrigley	603,877	14.65%
13	Fortune Brands	580,025	14.55%
14	Kroger	546,793	14.41%
15	Schering Plough	537,050	14.36%
16	Procter and Gamble	513,752	14.26%
17	Hershey	507,001	14.22%
18	Wyeth	461,186	13.99%
19	Royal Dutch Petroleum	398,837	13.64%
20	General Mills	388,425	13.58%

Use these charts as tools to help you along your path.  When prices of a good company sink, tell yourself you're buying more shares at a cheaper price and magnifying your returns.  Be patient, and imagine your bank account after 40+ years of investing wisely, very similar to those amounts above…