How to Earn Over 9% Yield on a Dividend Stock
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It was 7 years ago when my wife and I purchased our first ever dividend stock for the Money Sprout Index. At the time, there was no Money Sprout Index and we didn’t really know all that much about investing in dividend stocks.
My wife and I were randomly investing in the market at the time with no real purpose. We had not yet found our true investment strategy – dividend stocks. We had read a review of a company that looked interesting called Consolidated Edison (ED) and decided to buy 25 shares.
There was no plan to hold these shares for a long time. While we were not day trading or anything like that, we both had a short term view to investing. I am sure that if the price of ED would have jumped by 20% back then, we would have sold our position.
Looking back at our first purchase, we have now realized that by investing in shares of this dividend stock 7 years ago, it was the start of something big.
Fast forward two years and we started to see the benefits of buying and holding dividend paying stocks. We decided to add shares of other top dividend paying companies like Procter & Gamble (PG), Johnson & Johnson (JNJ), and McDonald’s (MCD). My wife and I were convinced at this point that dividend investing was the only strategy for us!
Today, we own over 25 stocks in the Money Sprout Index and have not looked back!
For those who are skeptical of buying and holding top dividend paying stocks for long periods of time – please keep reading. I want to show you the power of compounding interest and how a stock holding can really grow over time.
25 Shares of Consolidated Edison (ED)
Back in July of 2008, my wife and I made an investment in a company called Consolidated Edison (ED). We purchased 25 shares at the time for a total of $977.50. That comes out to be $39.10 per share of stock.
25 Shares of ED @ $39.10 per share = $977.50 investment
At the time we did not know it, but this purchase helped to lay the foundation for the Money Sprout Index. While shares of ED may not be on our buy list today, we have held on to our original shares purchased, which have grown steadily over that time.
Here are a few highlights of how our 25 shares of Consolidated Edison (ED) have grown over the past 7 years.
- 28 dividend payments received
- $509.39 paid out in dividends
- 9.963 shares bought on DRiP
- $90.90 in expected 12 month forward dividend income
- 9.30% yield on cost
Over the course of 7 years (almost), we have received 4 dividend payments per year for a total of 28. Each consecutive dividend payment was higher than the previous. This was a result of using DRiP to reinvest in additional shares of stock and from annual dividend increases made by the company.
Speaking of DRiP, we received an additional 9.963 shares of ED in the past 7 years for a total of 34.963. These extra shares have brought down our average share price to $27.96 since we still have only invested $977.50.
Those extra shares along with annual dividend increases has pushed our yield on cost to an astounding 9.30%! Think about that for a minute.
We are currently earning over 9% yield on shares of ED we purchased almost 7 years ago. That is awesome growth!
In the past 7 years, we have collected $509.39 in dividends – which have been used to purchase the 9.963 new shares of ED. The total dividends earned is actually 52% ($509.39 / $977.50) of the total cost paid for the original 25 shares!
We have earned more than half of the total investment back just in dividends. Factor in the price per share has gone up by about 47% since we first purchased the stock 7 years ago and we are sitting on a great investment!
The future also looks very bright for this stock in our portfolio. Based on the current dividend yield, our 12 month forward dividend income just for Consolidated Edison is $90.90!
That number will likely grow every time we DRiP new shares or the company raises its dividend again.
Consolidated Edison was the earliest member of the Money Sprout Index. My wife and I bought 25 shares of this stock almost 7 years ago when we didn’t really know anything about dividend investing. Fortunately, we held on to this stock and eventually set our focus to investing in top dividend paying stocks.
I like to show the power of dividend stock investing and earning compounding interest with actual results. In just under 7 years, we have earned over $500 in dividends from doing absolutely nothing!
Every once in a while I will check in on this company to make sure they are still in business. But other than that we have basically sat back and let our investment work hard for us earning more dollars.
These extra dollars have been pumped back into our cash producing machine, which has resulted in almost 10 additional shares of the stock.
At this point, we are earning over $90 per year in dividends from this one company. As each quarter passes and we add to our position, this income stream will continue to pick up steam. I can’t wait to see what the next 7 years has in store for this cash producing stock.
What was your first ever dividend stock you purchased? Have you tracked your yield on cost from the stock?