In 2023, dividend investing will once again prove to be one of the most viable investment options.
I will show you why I’ll focus on investing in quality dividend-paying stocks and ETFs in 2023. In 2022, our dividend portfolio grew from $7,500 to $13,500. While this was nearly an incredible 50% increase in the value of my dividend portfolio, the even better news is that I started to get very close to reaching my goal of receiving $1000 each month and dividend income I go over all this in my monthly dividend portfolio reviews for dividend investors. increasing the size of your portfolio is important but the main focus of a dividend portfolio should be creating a consistent source of dividend cash flow portfolio value is volatile, but this poses far less risk for dividend investors who have created strong cash flow by investing in a quality dividend-paying companies. But why should investors place a stronger emphasis on dividend stocks when there are so many other investment opportunities available? The main reason is because of the compounding effect that takes place when you invest in dividend stocks and then reinvest the dividends back into your holdings.
Dividends play an important role in generating a total return. Since 1926, dividends have contributed approximately 33% of the total return for the S&P 500. As an example, we can see just how large the difference is when we reinvest our dividends versus not reinvesting our dividends by using a dividend calculator. And let’s say for the scenario, we have invested an initial amount of $1,000, we have a holding period of 30 years. Let’s say our expected dividend yield is just about 4%. It distributes it quarterly. And let’s say we contribute about $1,000 each month and are expected annual dividend increase is only about 4%. In our expected annual share price increase, we’ll say it stays relatively low. And we’ll say it’s at 4%. And this is without reinvesting dividends. So when we calculate our returns, we can come down and we can see that our ending balance is $676,000. And our annual dividend income would be $83,000. But if we perform this exact same investment scenario, while reinvesting our dividends, we can see exactly what the difference would be. So when we reinvest our dividends, we can see our ending balance would be $3,279,000. And our annual dividend income would be $364,000.
One of the clearest historical examples of the power that reinvesting dividends has is the Coca-Cola Company. Let’s take a look at what a one-time investment of $10,000 into the Coca-Cola company from a 30-year period of 1989 to 2021 would get us. So if we come down here and calculate our return once it loads in, you can see a simple one-time investment of $10,000 after a 30-year period would have grown to $1.4 million, which would be an annual return when compounding your dividends of 16.2%.
Another reason that dividend investing will win in 2023 is that dividend stocks also provide more safety to investors dividend-paying stocks provide a way for investors to get paid during rocky market periods when capital gains can be hard to achieve. They provide a nice hedge against inflation, especially when they grow over time. They are tax-advantaged unlike other forms of income such as interest or fixed-income investments. dividend-paying stocks also on average tend to be less volatile than non-dividend-paying stocks. dividend investing will win 2023 Because it has proven throughout history to be one of the most effective ways to build wealth when dividends are reinvested to take advantage of the power of compounding.
Albert Einstein was credited with stating that compound interest is one of the most powerful forces in the world. That statement was true then and it will prove to be true once again in 2023.
Great content! Keep up the good work!