Here’s a story of how to buy stocks for nothing and earn more at the same time. In 2000 I purchased 185 shares of TransCanada (TRP) for $13.40 each, at the time the dividend was $0.80 per share. This meant that in the first year I earned $148 in dividends.
185 shares x $0.80 = $148
Dividends are a cash payment made to shareholders; you can re-invest the cash payment or spend it as you wish. I decided to keep my dividends. Each year TRP increased their dividend per share.
By 2013 I had received a total of $3448.40 in dividends just from TRP. Over the years I had taken those dividends and used the money to invest in a number of other stocks. But for simplicity let’s say I decided to keep the dividends and then invest the money ($3448.40) into Canadian National Railway (CNR) in 2014. At that time the CNR shares were selling at $60.02. Suppose I purchased 57 shares in CNR, the CNR dividends have continued to rise since then:
2014 (CNR dividend) $1.00
2015 (CNR dividend) $1.25
2016 (CNR dividend) $1.65
TRP also continued to increase it’s dividend since 2013.
2014 (TRP dividend) $1.92
2015 (TRP dividend) $2.08
2016 (TRP dividend) $2.26
Now let’s put this all together. In 2000 I invested $2479 in TRP, I then used the dividends I received from TRP to buy CNR shares (essentially these CNR shares cost me nothing). This year I will receive the following dividends from both companies:
TRP: 185 shares x $2.26 = $418.10
CNR: 57 shares x $1.65 = $94.05
$512.15 divided by my original investment represents an annual return of 21%.
$512.15 / $2479 = 21%
It takes time but you too can buy stocks for free and earn double digit returns. Remember to buy quality dividend paying stocks when they are undervalued. Follow the The 12 Rules of Simply Investing to know when a stock is undervalued and when it’s a quality stock.
Did you enjoy reading this article? If so, I encourage you to sign up for my newsletter and have these articles delivered via e-mail once a month…and it’s free!