Examples of Dividend
The following dividend example
Common Examples of Dividends include –
The article does not discuss the definition or types of dividend but speaks about the power of investing, the power of dividends and the compounding power through various examples of successful investors who followed the buy and hold strategy and whose tiny investments created mountain huge wealth.
Dividend Example #1 – Abbot Labs and Groner
Abbot labs a blue-chip pharmaceutical company shows tremendous growth in its earnings and the share prices properly reflect this growth. The market prices of Abbot Labs hiked from 62 in 1939 to 150 in 1948 at an average CAGR of 10.31% including around 40 dividend payments in this 9-year span.
Grace Groner a low earning but full of life woman and employee at Abbott Laboratories bought 3 shares of the company at the rate of $60 per share and invested a total 200 dollars of his life savings in the year 1935. She follows the buy and hold strategy and kept herself invested for a very long time, i.e. for around 75 years and let the compounding do its work.
Over time she received multiple cash dividends and stock dividends in the form of and share splits. She reinvested all this dividend income and in the year 2010 when she died at the age over 100 years, the value of her 3 shares worth $180 becomes a staggering $7.2 million. With multiple stock splits during these 75 years, she holds over 1,00,000 shares of Abbott Laboratories.
The compounded annual growth rate (CAGR) of her investment comes out to be around 15.13% which is a healthy average.
Grace Groner donated all this money to Lake Forest College to be used for scholarships.
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Dividend Example #2 – Wipro and Anwar
Wipro Ltd is best known as an IT and Software Company but it started its operations as an oil manufacturer during 1945 in Amalner, Maharashtra, British India. During 1980s Wipro shifted its focus to IT and computing industry after IBM left India in 1977. Wipro has diversified its business in various industries including healthcare, FMCG, electronics, IT, software, etc. It is the 7th largest IT service company in the world and is valued around $11.56 billion as of December 2018
Mohammed Anwar Ahmed resident of Amalner town inherited Rs.20000 from his farmer father. He invested Rs.10000 and bought 100 shares of Wipro at the rate of Rs.100 per piece in 1980. He pledges not to sell a single share until Mr. Azim Premji remains the working Chairman of the company.
Anwar remains invested for over 33 years and in the year 2010 the cumulative value of dividend he received crosses over Rs.118 crores. He holds over 96 lakh shares result of stock dividends in the form of stock splits that valued more than Rs.480 crores. The overall gain becomes Rs.598 crores
I.e. with an investment of just $1250 (@ Rs.8 per dollar in 1980) he created sky–the high wealth of over $133 million (@ Rs.45 per dollar in 2010) in just 33 years
Anwar donates freehandedly. Also, the chairperson of Wipro Ltd, Mr. Azim Premji apart from his previous donations has donated 34 percent of his shareholding in Wipro that worth nonetheless $7.5 billion dollars or Rs. 52750 crores in 2019.
Dividend Example #3 – IPO of Apple
Apple Incorporation an American multinational technology company considered as ‘the Big Four of technology’ popularly known as a smartphone manufacturer. The company is a global leader by market capitalization; the valuation surpassed $1 trillion in mid-2018.
The IPO or initial public offering of Apple launched in 1980 at a price of $22 per unit. Investment of just $1000 in Apples IPO for buying 45 shares at the rate of $22 and remain invested for about 38 years would have created you a wealth of not less than $89,14,000. This results due to four stock split till date as well as regular and special cash dividends paid by the company. The market price of Apple at the end of 2018 was around $222 per share.
The invested amount grew at a tremendous CAGR of 28% in a period of 38 years or a return of 891300% on your initial investment.
Apple’s CEO Tim Cook donated 23215 shares from his personal shareholding worth $5 million in 2018.
Dividend Example #4 – Compounding Power
In our final example, we try to explain the power of compounding. In a ‘buy and hold strategy’ or ‘dividend investment strategy’, the cash dividends are the recurring deposits that are paid yearly, semiannually and even monthly by various companies and the stock dividend (or share splits) multiplies the units held by the investors.
The most important factors to get benefited from the power of compounding includes:-
- Selection of quality dividend stocks.
- Look after fundamentals like dividend payout ratio and dividend yield.
- Reinvest the dividend earnings called Dividend Reinvestment Plans (DRIPs).
- Give time to your investments to create wealth.
Let’s assume you buy 10 shares of coca cola, a quality dividend paying stock, at the rate of $50 per share and invested a total amount of $500. The annual dividend yield of the company is around 6%. At the end of 1st year, Coca Cola pays you an annual dividend of $30. You keep reinvesting your dividend earnings for around 20 years. The $500 investment will be valued at around $1603 in 20 years. The return looks tiny because the invested value is small also we have assumed nil stock splits and nil change in stock prices.
- Select quality stocks and stick with a try and tested strategy like a dividend investment strategy.
- Make your money work for you by investing and reinvesting your earnings.
- Compounding is a very powerful tool.
- Diversify your portfolio
- Dividends can keep you safe during periods of economic depressions
- Practice philanthropy and donate your time and/or money for charity.
This is a guide to dividend examples. Here we provide you with top 4 examples of successful dividend investing in companies like Abbot Labs, Wipro, and Apple. You can learn more about financing from the following articles –