Before we continue, let us show you just how important dividend aristocrat stocks are.
Let’s imagine that we’re in 1995 and that you have $1,000 to invest. You are going to make a really bad choice, and invest all your money in one stock.
That company is International Business Machines (IBM)and it’s traded at $20 per stock. So, you purchase 50 shares.
IBM has a 5.5% yearly dividend yield, paid out quarterly. Since IBM is a dividend aristocrat, the expected annual dividend increases by roughly 0.5% each year, while the share price goes up by roughly 7%.
Now, let’s pretend that for 25 years you take all those annual dividends and reinvest them by buying more IBM stocks.
Welcome back to early 2021. Let’s look at your investment. These numbers are going to shock you.
Because you’ve used your dividends to buy more IMB stock, your 50 shares are now 195. The price per share went up from $20 to $108.55. This means that your $1,000 investment is now worth $21,167.25. On top of that, your annual dividend income is $1,182.69, more than your initial investment.