You can do this in several ways. If you actually get hold of your stock certificates and a company has a DRIP, then you can apply to the company to automatically buy more shares for you rather than paying you a dividend. This is what I did initially to grow my portfolio. However, it is not particularly easy or cheap to get stock certificates today.
Most Canadian stock brokers will do DRIPs for you when you have a trading account. The difference between a company's DRIP and a stock broker's DRIP is that the company's DRIP will use the whole dividend and buy full and partial shares. When I did this they purchased shares up to 3 or 4 decimal places. The stock brokers DRIP will only buy full shares and will not use up the full dividend.
Also, once you get started and have a portfolio of a few stocks, you can put the dividends from your stocks together to buy more shares rather than just buy shares in the companies you already own. I used my first 3 stocks and DRIPs to get a portfolio started and then I cancelled the DRIPs and used dividends to buy shares in other companies.
What I will illustrate is 6 different scenarios, 3 with higher dividends and 3 with lower dividends and all with different dividend growth rates. I am basing these scenarios on some actual performance of stocks I own. The scenarios are as shown below with the names of stocks which matched in the past these sorts of original dividends and dividend growth rates.
In all these scenarios, you have invested $10,000 at $10 a share for a 1,000 shares of each stock. In the first table I am showing what dividends you would receive in the first year of holding these stocks. I have highlighted the stocks with the highest initial yearly dividend payment. The columns are Original Dividend Yield, Dividend Growth, Income and Income with Reinvestment. The chart below shows year 1.
| # | Similar | Ori Yield | Div Growth | Income | Rev Inc |
|---|---|---|---|---|---|
| 1 | RY | 4.70% | 11.00% | $520.00 | $520.00 |
| 2 | BMO | 6.70% | 6.30% | $710.00 | $710.00 |
| 3 | RIO.UN | 7.60% | 3.10% | $780.00 | $780.00 |
| 4 | ATD.B | 0.80% | 15.30% | $90.00 | $90.00 |
| 5 | SAP | 2.20% | 11.80% | $250.00 | $250.00 |
| 6 | SNC | 1.90% | 22.00% | $230.00 | $230.00 |
In year 5 the following chart shows what you would be receiving from each stock in original income and if you reinvested your dividends. I have highlighted what stocks would be producing the most and the least in dividend income.
| # | Similar | Ori Yield | Div Growth | Income | Rev Inc |
|---|---|---|---|---|---|
| 1 | RY | 4.70% | 11.00% | $790.00 | $961.77 |
| 2 | BMO | 6.70% | 6.30% | $900.00 | $1,175.65 |
| 3 | RIO.UN | 7.60% | 3.10% | $880.00 | $1,181.66 |
| 4 | ATD.B | 0.80% | 15.30% | $160.00 | $169.61 |
| 5 | SAP | 2.20% | 11.80% | $390.00 | $429.99 |
| 6 | SNC | 1.90% | 22.00% | $500.00 | $552.51 |
In year 10 the following chart shows what you would be receiving from each stock in original income and if you reinvested your dividends. I have highlighted what stocks would be producing the most and the least in dividend income.
| # | Similar | Ori Yield | Div Growth | Income | Rev Inc |
|---|---|---|---|---|---|
| 1 | RY | 4.70% | 11.00% | $1,340.00 | $2,041.74 |
| 2 | BMO | 6.70% | 6.30% | $1,220.00 | $2,178.11 |
| 3 | RIO.UN | 7.60% | 3.10% | $1,030.00 | $1,994.37 |
| 4 | ATD.B | 0.80% | 15.30% | $320.00 | $364.38 |
| 5 | SAP | 2.20% | 11.80% | $680.00 | $832.88 |
| 6 | SNC | 1.90% | 22.00% | $1,340.00 | $1,637.76 |
In year 15 the following chart shows what you would be receiving from each stock in original income and if you reinvested your dividends. I have highlighted what stocks would be producing the most and the least in dividend income.
| # | Similar | Ori Yield | Div Growth | Income | Rev Inc |
|---|---|---|---|---|---|
| 1 | RY | 4.70% | 11.00% | $2,250.00 | $4,319.27 |
| 2 | BMO | 6.70% | 6.30% | $1,660.00 | $4,091.12 |
| 3 | RIO.UN | 7.60% | 3.10% | $1,030.00 | $1,994.37 |
| 4 | ATD.B | 0.80% | 15.30% | $670.00 | $801.46 |
| 5 | SAP | 2.20% | 11.80% | $1,190.00 | $1,622.17 |
| 6 | SNC | 1.90% | 22.00% | $3,610.00 | $4,723.56 |
In year 20 the following chart shows what you would be receiving from each stock in original income and if you reinvested your dividends. I have highlighted what stocks would be producing the most and the least in dividend income. For some stocks, the income from reinvested dividends is quite a bit higher as with Royal Bank growing from $3,810.00 to $9,156.43.
| # | Similar | Ori Yield | Div Growth | Income | Rev Inc |
|---|---|---|---|---|---|
| 1 | RY | 4.70% | 11.00% | $3,810.00 | $9,156.43 |
| 2 | BMO | 6.70% | 6.30% | $2,250.00 | $7,649.42 |
| 3 | RIO.UN | 7.60% | 3.10% | $1,390.00 | $5,542.68 |
| 4 | ATD.B | 0.80% | 15.30% | $1,370.00 | $1,634.90 |
| 5 | SAP | 2.20% | 11.80% | $2,090.00 | $3,192.92 |
| 6 | SNC | 1.90% | 22.00% | $9,750.00 | $13,800.26 |
See the full spreadsheet here. If you want a copy of any of my spreadsheet to fool around with, email me.
On my other blog I am today writing about Lassonde Industries Inc. (TSX-LAS.A, OTC- LSDAF) ... continue...
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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