Are extraordinary returns possible with dividends?

You can read the blog post below, or watch episode 7 of the Simply Investing Dividend Podcast where I cover this topic!

Is it possible to earn over $200K each year in dividends alone? Extraordinary returns are possible with dividends. In this article I share with you three incredible examples of dividend returns.

What are dividends?
Dividends are a portion of a company's profits that it shares with it's shareholders. For example if a company is paying a dividend of $1 per share and you own 1000 shares you will receive $1000 each year in dividends, as long you you continue to own those shares, and as long as the company continues to pay the $1/share dividend. Dividends are automatically deposited as cash into your trading account. You can spend your dividends or reinvest them into other dividend-paying stocks. Dividends provide you with an immediate return on your investment while you hold on to your dividend-paying stocks, regardless of what happens to the stock price. 

What is a stock split?
A stock split happens when a company increases the number of its shares to boost the stock's liquidity. Even though the number of shares outstanding increases by a specific multiple, the total dollar value of all shares outstanding remains the same, because a split does not fundamentally change the company's value. For example, if you own 100 shares, and the current share price is $50, after a 2-for-1 stock split you would own 200 shares and the share price would be $25. Although, you now have double the amount of shares the overall value of your investment has not changed:

Before stock split: 100 shares x $50 = $5,000
After stock split: 200 shares x $25 = $5,000

How do stock splits and dividends benefit me?
Over time a combination of dividend increases and stock splits will increase the value of your investment. For example in 2011 Coca-Cola (KO) stocks was trading at $62.84 (pre-split price), in 2012 the stock split 2-for-1, today the stock price $65.90 exceeding it's pre-split price. If you bought KO shares in 2011 you would now own double the amount of shares and the share price today is higher than your original purchase price. Now, let's take a look at 3 examples of extraordinary returns:

Example #1: Earning $428,752 annually with Walmart (WMT) shares
In 1970 Walmart (WMT) shares were trading at $16.50 each, if you purchased 100 shares back then today you would own 204,800 shares:

1970: 100 shares
1971: 200 shares (2-for-1 stock split on 6/11/71)
1972: 400 shares (2:1 split on 4/5/72)
1975: 800 shares (2:1 split on 8/22/75)
1980: 1,600 shares (2:1 split on 12/16/80)
1982: 3,200 shares (2:1 split on 7/9/82)
1983: 6,400 shares (2:1 split on 7/8/83)
1985: 12,800 shares (2:1 split on 10/4/85)
1987: 25,600 shares (2:1 split on 7/10/87)
1990: 51,200 shares (2:1 split on 7/6/90)
1993: 102,400 shares (2:1 split on 2/25/93)
1999: 204,800 shares (2:1 split on 4/19/99)

Current WMT share price: $157.65
Current WMT annual dividend: $2.24

Your WMT shares would be worth over $32M today:
204,800 shares x $157.65 = $32,286,720

Your WMT shares would provide you with over $458K each year in dividends alone:
204,800 shares x $2.24 dividend = $458,752

Example #2: Earning $259,706 annually with Home Depot (HD) shares
In 1981 Home Depot (HD) shares were trading at $21 each, if you purchased 100 shares back then today you would own 34,171.88 shares:

1981: 100 shares
1982: 150 shares (3-for-1 stock split on 1/5/1982)
1982: 187.5 shares (5:4 split on 4/12/1982)
1982: 375 shares (2:1 split on 11/29/1982)
1983: 750 shares (2:1 split on 6/1/1983)
1987: 1125 shares (3:2 split on 9/8/1987)
1989: 1687.5 shares (3:2 split on 6/14/1989)
1990: 2531.25 shares (3:2 split on 6/14/1990)
1991: 3796.875 shares (3:2 split on 6/5/1991)
1992: 5695.3125 shares (3:2 split on 6/11/1992)
1993: 7593.75 shares (4:3 split on 3/24/1993)
1997: 11390.625 shares (3:2 split on 6/12/1997)
1998: 22781.25 shares (2:1 split on 6/11/1998)
1999: 34171.875 shares (3:2 split on 12/2/1999)

Current HD share price: $307.80
Current HD annual dividend: $7.60

Your HD shares would be worth over $10M today:
34,171.88 shares x $307.80 = $10,518,104

Your HD shares would provide you with over $259K each year in dividends alone:
34,171.88 shares x $7.60 dividend = $259,706

Example #3: Earning $202,752 annually with Coca-Cola (KO) shares
In 1960 Coca-Cola shares were trading at $46 each, if you purchased 100 shares back then today you would own 115,200 shares:

1960: 100 shares
1960: 300 shares (3-for-1 stock split on 1/22/1960)
1965: 600 shares (2:1 split on 1/22/1965)
1968: 1200 shares (2:1 split on 5/13/1968)
1977: 2400 shares (2:1 split on 5/9/1977)
1986: 7200 shares (3:1 split on 6/16/1986)
1990: 14400 shares (2:1 split on 5/1/1990)
1992: 28800 shares (2:1 split on 5/1/1992)
1996: 57600 shares (2:1 split on 5/1/1996)
2012: 115200 shares (2:1 split on 7/27/2012)

Current KO share price: $65.07
Current KO annual dividend: $1.76

Your KO shares would be worth over $7M today:
115,200 shares x $65.07 = $7,469,064

Your KO shares would provide you with over $202K each year in dividends alone:
115,200 shares x $1.76 dividend = $202,752

You don't need a lot of money to start investing
As you can see from the above 3 examples, over time a combination of dividend increases and stock splits will increase the value of your investment. The longer you stay invested in stocks the less money you will need to initially invest. For example, only $1650 was needed in 1970 to invest in Walmart in order to own 204,800 shares, however if you wanted to buy 204,800 shares today in WMT you would need to invest $32,286,720. Similarly, only $2100 was need to invest in Home Depot (HD) in 1981 in order to earn $259,706/yr in dividends today. But if you waited until today, you would need to invest $10,518,104 in HD in order to obtain the same $259,706/yr in dividends.

Dividend Investing
When is comes to dividend investing it pays to be patient. Remember time and dividend increases will put more money in your pocket. That's why its important to invest sooner than later. Your future self 25 years from now will thank you for the investing decisions you make today.

I'm here to help
I can help you to start investing today and focus on selecting the right dividend stocks, why re-invent the wheel when you can learn from my 20-years of being in the stock market. I've witnessed first hand the ups and downs of the market, and I know what it's like to start investing your hard earned money. I created the 12 Rule of Simply Investing to help you get started right away, so you don't have to wait on the sidelines any longer. I also built the ultimate tool (that I wish I had when I started investing in1999) to help dividend investors focus on quality stocks for long-term growth. The sooner you start investing the sooner you will be on your path to financial freedom.

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Can you earn $4000/year in dividends with only $25K invested?
Can dividend increases raise the share price?


Richard Stuart

Is it just me or are 2:1 splits becoming rarer in today's market?

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Kanwal Sarai

Out of the 85 stock splits announced this year (January 2022 to April 2022) on the NASDAQ, there have been only four 2:1 stock splits. I guess they are becoming rarer. 

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