the strategy of dividend investing has a large compounding effect especially when dividends are being reinvested back into your holdings in this video I'm gonna demonstrate this effect through modeling 25 years of dividend reinvestment [Music] my name is Zach and you should leave a like and subscribe to the channel if you enjoy the video today I want to show you the real power of dividend investing which can only be revealed on a long time scale the reason for me showing this is because people often get discouraged or frustrated by a lack of early results in their
investments so if you're using multiple examples and visualizations I will show you how this snowball effect can be your path to financial independence and building generational wealth to build this model I'm gonna base it off one of my favorite investments 3m this dividend paying stock has had 61 years of consecutive dividend growth and is currently my top holding in my long term dividend stock portfolio if you'd like to see more information about 3m then check out the video I made reviewing the stock the link is in the description to make this model I took the
historical statistics of the stock and projected them forward over the next 25 years I used the compound annual growth rate of the dividend based on the last five years which is ten point nine nine percent and the compound annual growth rate of the stock price based on the last ten years which is 7.5 percent and projected these rates forward first let's look at how a one-time investment of $1,000 will perform over 25 years in the end we have a total value of twenty three thousand seven hundred eighty nine dollars when reinvesting dividends and six thousand
four hundred forty two dollars when not reinvesting dividends this is a massive difference at seventeen thousand three hundred forty six dollars it should be noted that although the total value is much lower you would receive all the dividend payouts which amounts to four thousand two hundred ninety three dollars so in totality you earned ten thousand seven hundred thirty six dollars which is still under half the value you would have had if you reinvest the dividends the reasoning for this is that you're buying more shares of the stock with your dividend which then increases your next
dividend payout increasing the amount of shares you can buy next thus increasing your payouts even more creating a snowball effect that compounds over time by the end of 25 years if you reinvest your dividends you will be receiving one thousand six hundred twenty dollars annually in dividends this means you will receive one hundred sixty-two percent of your initial investment in just your annual payment at this point you can continue reinvesting your dividends and see even more massive growth than before or start taking out the payments and using them for personal expenses even if you stopped
reinvesting at this point your payout will still continue to grow as the dividend is increased over time so the earlier you can start investing and capitalize on this reinvestment time the better your results will be so that's what would happen on a small scale if you just did a one-time investment of a thousand dollars and it's pretty impressive what would your results be view had a more comprehensive investing strategy let's look at how investing one thousand dollars every month over the next 25 years will change the results this means that over the period of 25
years you would have invested a total of three hundred thousand dollars by the end of the period we have a total value of 2.3 million when reinvesting dividends and 877 thousand when not reinvesting dividends this is a crazy difference of 1.4 million between the two strategies now again to be fair you would receive four hundred seventy nine thousand five hundred $24 in dividends during this time if you don't reinvest giving you a total of 1.3 million dollars but this is still over a million dollars less than if you had reinvested your dividends however the most
important factor is the dividend income that you'll be receiving by the end of the 25 years you'll be receiving a hundred fifty seven thousand dollars in annual dividend income when you reinvest your dividends this is 52 percent of your total dollars invested just from one year's dividends if you hadn't reinvested then you would only have sixty two thousand dollars in annual dividend income which is 20 percent of the dollars you invested in total once again the longer you can go through this process of reinvestment the better because the compounding effect only gets stronger with time
this is only scratching the surface of this effect let's just take a quick look at what happens if you spend just five or ten more years reinvesting dividends in 30 years you'll have three hundred ninety eight thousand dollars in annual dividends and a total value of five million dollars in 35 years you'll have 1 million dollars in annual dividends and a total value of 11 million $700,000 that's insane the gap between reinvesting dividends and not doing so is now an incredible difference there is now a nine point seven million dollar gap in the total value
and a eight hundred seven thousand dollar gap in annual dividend income I really need to emphasize how crazy of a difference that is this is all just for investing a thousand dollars a month for 35 years and reinvesting the dividends over time the gap between reinvesting and not reinvesting only gets larger so the earlier you start investing the more powerfully you'll experience the snowball effect of dividend investing thank you for watching the tenth video of dividend data I greatly appreciate if you could leave a like and subscribe to the channel every month you'll get a
breakdown of my full long-term dividend stock portfolio and every week get a video like this if you follow me on Twitter linked in the description you can get real-time updates of my buys and dividends coming in I recently launched a patreon where you can support the channel here you can gain access to my personal spreadsheet chat with other viewers and have your name displayed on the end of every video if you'd become a premium supporter of the channel please leave a comment below and thank you for watching you [Music]
