the strategy of dividend growth investing has a massive compounding effect especially when reinvesting earned dividends back into your Holdings I call this the dividend snowball today I'm going to demonstrate this effect by modeling 35 years of investment my name is Zach this is dividend data 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 is only revealed on a long time scale the reason for me showing this is people often get discouraged or frustrated by a lack of early results in their Investments so through using multiple examples I will show you how the dividend Snowball Effect can be your path to financial Independence and building generational wealth I'm going to base this model off of a popular dividend stock ADP this is a dividend Aristocrat meaning it has over 25 consecutive years of dividend increases so I will use the compound annual growth rate of the dividend based on the past 5 years which is 12. 12% and the 5-year keger of the stock price which is just over 10% however I will lean more on the conser ative end and enter 10% for both first let's look at how a one-time investment of $11,000 will perform over 35 years in the end we have a total value of $614,000 when reinvesting dividends and $32. 40 when not reinvesting dividends this is a massive difference of $29,000 it should be noted that although the total value is much lower you would receive all the individual dividend payments as cash which amounts to $556,000 so in totality you earned $38,000 when you don't reinvest the dividends which is still significantly lower than the $614,000 you have in value if you reinvest the dividends the reasoning for this is that you are buying more shares of the stock with your dividend which 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 35 years if you reinvest your dividends you will be receiving $996 184 ents annually in dividends this means you'll receive 99.
68% of your initial $1,000 investment in just one year's payment at this point you can continue reinvesting your dividends and see even more massive growth than before or start taking out the payment even if you stop 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 onetime investment of $1,000 pretty impressive but what would the results be if you had a more comprehensive investing strategy let's look at how investing $1,000 every month over 35 years will change the results by the way if you want to use the exact calculator I'm using throughout the video it is available for free at my website dividend dat. com also sign up for my free email newsletter to help you find great dividend stocks links in the description and pinned comment if you invest $1,000 a month that means over 35 years you would have invested $420,000 by the end we have $6. 1 million when reinvesting dividends and $3.
8 million when not reinvesting dividends that is a crazy difference of $2. 3 million between the two strategies now again to be fair you would receive $600k in dividends during this time if you don't reinvest giving you a total of $4. 4 million which is still over 32% less than your total if you had reinvested dividends however the most important factor is the dividend income that you'll be receiving by the end of 30 5 years you'll be getting paid just under $100,000 in annual dividend income if you reinvested your dividends this is 23.
7 1% of your total invested Capital if you hadn't reinvested then you would have 62k in annual dividend income which is nearly 40K less once again the longer you go through this process of reinvestment the better because the compounding effect only gets stronger with time the difference between year 25 and 35 is immense the earlier you start investing the more powerfully you'll experience The Snowball Effect of dividend investing that is why you need to start now time invested is the most important factor for compound interest if you want to find better dividend stocks then sign up for my free email newsletter the dividend snowball calculator is available for free at dividend dat.
