The Graduation Milestone
As May rolls around, it’s the season of college graduations, and like many proud parents, I recently attended my daughter’s commencement ceremony at the University of Miami, where she earned a Bachelor of Science in Nursing. Fortunately, she has already secured a job at Cook Children’s Hospital in Fort Worth, TX, just a “short” 20-hour road trip from Miami. Being the supportive parent, I volunteered to accompany her on the journey and help her move her car and belongings.
The Thought-Provoking Question
During our road trip, our conversations covered a wide range of topics, from electronic dance music (EDM) to rising housing prices, the shortage of affordable housing, and the renewed interest in lunar exploration. However, one particular question from my daughter caught my attention: “OK Dad, now that I’m about to start working, how and what should I save for the future?”
I must admit, I was initially taken aback by her forward-thinking question, as saving for the future is a trait often lacking among many young people. As someone nearing retirement, I primarily utilize a dividend investing strategy designed to replace my earned income after I retire. However, I realized that this approach might not be the most suitable for my 24-year-old daughter.
The Explanation
To address her question, I started by explaining the basics of “growth” focused investing and then moved on to a dividends-focused strategy. I explained that purchasing equities that pay dividends means the company is sharing its profits through regular payments to shareholders. “If you can identify companies that are aggressively growing their dividends, this should result in significant consistent payments to you once you retire (in 40 years!),” I told her.
The Dividend Growth Screener
Dividends360.com’s screener identifies 18 securities that have a dividend growth rate (DGR) greater than 10%, a yield higher than 5%, with a minimum of 5 years of increasing dividends.
To access the complete list, sign up for a free account at Dividends360.com, go to the screener, and replicate the filters shown below.
As an illustration, I selected 5 of these securities and simulated investing $5,000 in each.
The Compounding Effect
The result after 20 years would be an annual income of $13,811 from the dividends
(per Dividends360.com calculations).
After 40 years, the initial $25,000 investment would have grown to approximately $1,062,000, producing an annual dividend income of around $89,000!
This substantial growth is driven by the compounding effect of reinvesting increasing dividend payments over a long period (40 years).
Conclusion:
It is crucial for parents and guardians to educate their children about the potential of dividend investing from an early age.
Don’t let the misconception that dividends are “just for old folks” deter your children from exploring this valuable investment strategy. Encourage them to start small, even with modest amounts, and witness the transformative power of compounding over time.
Disclaimer: This blog is for informational purposes only and should not be taken as financial advice. Always consult with a financial advisor before making any investment decisions.