Dividends Are Key

By Kanwal Sarai
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Most people dismiss dividends; most people don’t even know what dividends are. In today’s blog I’m going to share with you my personal story of how I’m earning double digit returns and without risk with one of my investments.

Dividends are cash payments made out to shareholders. Basically the company is sharing profits with the owners, the shareholders like yourself. For example if you own shares in company XVY and they pay a dividend of $0.85 per share and you own 1000 shares, you will receive $850 cash each year for as long you own those shares and for as long as the company continues to payout the dividend.

Most people dismiss dividends thinking that a few cents here and there are peanuts. I know $0.15, $0.21, $0.53 does sound low, but here is the key that most people forget; over time well managed profitable companies increase their dividends! This is very important so I’ll repeat it again; over time quality companies increase their dividends.

Here’s is my personal story that will illustrate the power of increasing dividends. I purchased shares in TRP (TransCanada Corporation) in 2000 for $13.40/share, the dividend at the time was $0.80 per share. Therefore my return was 5.97% (dividend divided by the share price).

The return is also called the Dividend Yield ($0.80 / $13.40 = 5.97%). I was pretty happy making 5.97% annually on my investment; however the story doesn’t end there.

The dividends in TRP have kept increasing every single year since 2000. Today the dividend for TRP is $1.60 per share. My return or Dividend Yield based on the original purchase price is 11.94% ($1.60 / $13.40 = 11.94%). I am now making 11.94% annually on my original investment. Let’s compare that to other investments:

Savings Account: 0.05%
2 year Term deposit: 2.17%
Government Savings Bond:  1.40%
My Dividend Yield based on Original Purchase Price of TRP: 11.94%

The story gets better, since I’ve owned the TRP shares the amount of dividends I have received has nearly equaled what I originally paid for the shares. Therefore I have almost made my money back. Any dividends I receive today plus and share appreciation is pure profit.

The story gets even better the TRP shares I bought for $13.40 are now valued at $36.32, which represents an increase of over 171% even without including dividends.

Dividends are key, and it does take time but if you’ve got the foresight to think ahead 3, 4, 5 or 10 years ahead and make those investments today you too could be enjoying double-digit returns with no risk to your investment.

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