A real example of dividend compounding

I have talked about dividend compounding quite a few times. Here is a real personal example of mine. Although it is only a short < 6 years old and the amount is not so big, I have personally felt the great impact of the dividend compounding. That’s why I’d like to share with you and hopefully you will also gradually build up your dividend compounding portfolio for your retirement and/or for your kids. I’m certainly totally convinced and am putting more money into it whenever a good time is coming, e.g. when the stock market is crashing.

I bought 100 shares of ConocoPhillips (COP) in Oct 2006 at $60. COP is a gigantic oil company, paying dividends for decades non-stop and being increasing them year after year. I got my first dividends of $47.23 that bought me 0.62672 share of COP. As you can see, it pays out dividends quarterly and my shares of COP are increasing slowly but surely over time. With increasing shares as well as increasing dividend payout, I’m getting more dividend amount over time. The COP share price went up to its top at $92 in Jun 2008 and then was hit by the financial crisis. It plunged all the way down to $36. I wish I was smart and brave enough back then to buy more shares of COP. Unfortunately I did not, but at least I was smart enough not to sell my COP shares during the crisis. In the past few years, slowly COP has come back and now it is exchanging hands at about $77. You may notice that my dividends now are about $80 per quarter, almost double in less than 6 years, during which I have also added 19 shares purely from dividend reinvestment.

You may think what’s a big deal. But don’t forget this is only about 100 shares with a $7500 initial investment. What about if I had invested in 1000 shares? More importantly, the compounding effect will be accelerated more and more as time passes. After 15 years, the effect of compounding will be exponential. I will definitely make the dividend compounding as the biggest portion of my portfolio over time and I expect in 20 years or so, my dividend income may be good enough for our daily life expenses.