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Many of you are familiar with the seven wonders of the world – seven remarkable constructions of classical antiquity. Of the original seven, only one – The Great Pyramid of Giza – still stands.
Fewer, I suspect, are familiar with the “8th Wonder,” a flippant term financiers give to the power of compound interest. If $100 were allowed to simply earn 5% each year, and the 5% return were reinvested, the $100 would grow to $13,150 in 100 years.
I doubt any of you are familiar with the “9th Wonder” – a term of recent vintage and of my own coinage. The 9th Wonder refers to the ability to grow wealth and income over time through dividend investment.
The concept is remarkably simple, yet incredibly powerful. It requires no unique insight, exceptional skill, or superior prowess. All it requires is a solid dividend-growth stock and time. That’s it!
I’ll demonstrate by way of example with ExxonMobil (NYSE: XOM).
Every investor is familiar with ExxonMobil; every Wall Street investment house has an analyst who follows the company. Indeed, over 25 analysts regularly peruse ExxonMobil’s financial statements. The company is well vetted and its stodgy, huge business model rarely produces surprises.
But ExxonMobil is a first-rate dividend grower. It has paid a dividend since 1911, and that dividend has increased every year for the past 38 years. (Actually, the growth extends much further back. A couple years of non-growth spoil the record.)
As ExxonMobil’s dividend claws to higher ground, it invariably pulls the share price along for the ride.
ExxonMobil Dividend and Share Price Growth
Over the past 10 years, ExxonMobil’s stock has appreciated at roughly 7.5% annually. Over the same time, the dividend yield has averaged roughly 2.5% at the going market price. So basically, you’re looking at a 10% average annual return – nice, but unspectacular.
Actually, it’s a little more nice and little more spectacular than I’m giving credit.
Over the past 10 years, you would have doubled your investment (your wealth position), and you would have more than doubled your annual income. The annual dividend was $1.06 per share in 2004; today, it’s $2.76. You also would own an investment that now yields 6% on your cost basis, not 2.5%.
Simple, elegant, powerful – that’s why I call dividend growth the 9th Wonder.
The key is to pick the right dividend grower. This past Wednesday, I expounded the horrors of picking the wrong dividend-grower. That is, a stock that was an established dividend grower, but is no longer.
ExxonMobil is a solid dividend grower, and I expect it to provide years of annual dividend growth. But I believe there are better dividend growers in today’s market.
We’ve produced a special report at High Yield Wealth that features the five best dividend growth stocks to buy today. These stocks are proven dividend growers, with decades of dividend growth likely ahead. We are confident these five stocks will enable you to fully exploit the wonderful wealth-enhancing benefits of 9th Wonder investing. Click here to get your report!