Monday, November 18, 2013

How a DRIP Helped Pay for My First Home

If there were no such thing as dividend reinvestment programs (DRIPs)  
How a DRIP Helped Pay for My First Home
Monday, November 18, 2013


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If there were no such thing as dividend reinvestment programs (DRIPs), I probably would never have been able to afford my first house.

 

A little more than seven years ago, in the summer of 2006, my grandfather invested a few thousand dollars in Procter & Gamble (NYSE: PG) stock under my name. He had enrolled me in the multinational consumer goods giant's dividend reinvestment program - a program I knew almost nothing about at the time.

 

He mailed me the first statement with a hand-written note that read, simply, "Procter & Gamble has raised its dividend every year for 50 years. I'm guessing it will raise it for another 50."

 

He was right.

 

At the time, P&G paid a quarterly dividend of $0.31 per share. The company has increased that dividend by at least four cents per year every year since, and the payout has basically doubled to $0.60 a share. That's good for a 2.8% yield.

 

Meanwhile, the stock has brought home a nice return. When I first "inherited" Procter & Gamble stock, it was trading for roughly $55 per share. Today it opened at an all-time record $84.84.

 

Between the healthy return and the DRIP, Procter & Gamble was a big winner for me.  For seven years, I watched as the company's ever-increasing dividend was reinvested into my original share count. My grandfather had started me out with a fairly modest 100 shares. With a dividend of 31 cents per share at the time, that meant an extra $124 for doing nothing that first year.

 

As P&G's dividend increased, so did my annual return. Every four-cent increase in the dividend added $16 to my return. At 60 cents per share this year, that meant an extra $240-plus in dividends alone.  Over seven years, I earned more than $1,300 in DRIPs.

 

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Throw in the 50% return due to share price appreciation, and that gave me a total return of more than $4,200 on a stock that had a principal of $5,000. That 84% return is exactly double the 42% return in the S&P 500 over the last seven years.

 

A few months ago, my wife and I bought a house. We probably wouldn't have been able to afford the down payment if not for the $9,267 in Procter & Gamble stock I had just sold. Given Procter & Gamble's half-century-plus history of annually upping its dividend, selling the stock after a mere seven years probably wasn't the wisest long-term investment. But we're a lot happier with our first home than we would have been without that P&G money.

 

If nothing else, I am now acutely aware of the power of DRIPs. It's rare to find a stock that doubles the market return. Without the DRIP, my Procter & Gamble return would have been only slightly better than the S&P return over the last seven years. Having the dividend reinvested every quarter added another 34% in total return.

 

I was lucky. Not everyone is fortunate enough to receive such a generous gift. What happened in the seven years since I received that gift, however, has convinced me to invest my own money in DRIPs.

 

Only a handful of dividend-paying companies offer dividend reinvestment programs - blue-chip companies such as Procter & Gamble, Johnson & Johnson (NYSE: JNJ) and Coke (NYSE: KO). If you're an income investor, it's worth enrolling in one.

 

Who knows? It could help pay for your next home.

 

Good investing,
 

Chris Preston
Richmond, Vermont

 

 

 

Is this happening in your neighborhood?

 

It feels like robbery. Local governments are broke. But instead of cutting spending, they're forcing homeowners to pay up - raising property taxes when most of us are feeling the pinch. There used to be nothing you can do about it - until now! There's a a special Federal program that allows you to completely pay off your real estate taxes through exclusive rebates. And they are available to any American. In fact, you can collect a Real Estate Tax Rebate next month! And every 30 DAYS after that!

 

Click here to find out how to enroll.

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