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Sunday, September 29, 2013

How to become millionaire with one boring stock

Not many people understand the power of dividend compounding. When you talk to people about investing in dividend paying stocks, you are often got a funny eye: stupid guy, who on the earth would care about dividend? Go to figure out high flying stocks which can give you a 100% jump overnight. OK, good luck with your dream. Personally, I'm still stubbornly interested in stocks which will pay me increasing dividends and hold them forever. To me, this is a sure way to get rich with very little risk and almost no additional work. Give you an example here.

I know I will get laughed at when I mention Microsoft (MSFT). What the heck to even think about this dead & boring stock! Well, I know it is boring but it can really make you rich, as long as you have the patience. MSFT is a cash gusher and a great dividend payer.  There is a good blog on MSFT's dividends. As you can see, it has a great track record of increasing dividends year after year: 5 year dividend growth rate at 15.3% & 10 year dividend growth rate at 28.4%.  Let's use the low end of a 15% dividend growth rate for the next 20 years. If you buy 1000 share today at $32 and reinvest all the dividends for 20 years, what will happen? Well, a simple $32,000 at the outset will lead you to a millionaire without you doing anything else. Simply watching and waiting. Is it amazing? That's why the greatest scientist, Albert Einstein, called compound interest – interest on interest – the eighth wonder of the world.

Note how much dividend you will ultimately earn if you simply reinvest it over the time, over $1 million vs just $131,000 if you don't compound it. The thing is, for investing in good companies with increasing dividends, you don't need to look for the stock to go up. Actually you will be better off if the stock goes down, since your dividends can buy more shares when they are reinvested, which will lead to bigger and bigger dividend earnings. That's the sure way to make you rich. Try to understand this concept if you haven't got it.



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