Why Dividends is the ‘Most Powerful Force’ in the Investment Universe

We all heard that ‘compounding’ is one of the most powerful investment concepts known to investors. However, that is only one small part of the story. The main body of of the story will be finding the right stocks to invest in. Compounding doesn’t work if the companies you invest in companies that have bad business models, substandard technology or not paying any dividends at all for a long period of time.


As Einstein puts it ‘ The Most Powerful Force in the Universe’ only works when you reinvest the money you make from an initial investment to grow even more money. Assuming your initial investment of $10,000 makes 10% for the first year. Instead of taking out the $1,000 , you reinvest the $1,000 and in the second year, the returns you make is $1,100 or 10% on your new balance of $11,000.


A simple Google search will give you a compound return calculator. All you have to do is key in your own starting capital, years and expected interest.

‘Do you know the only thing that gives me pleasure? It’s seeing my dividends coming in.’ John D Rockefeller


But again, the S&P 500 returned and average of only 9.7% annually since inception in 1928. We found out that High-dividend-paying stocks returned even more for investors who compounded their returns in the medium to long term.


The below table shows how compounding returns work in your favor at 10% annually into 40 years. Note: this is assuming you are not adding any new capital into your initial investment.


Year Year’s Returns Total returns Ending Balance Total % Returns based on initial capital
































The above shows in 10 years your total money grows into $25,937 or 159% from your initial investment. After 40 years, this adds up to $452,592 or a 4426% returns on your initial investment of $10,000!


The fact is, most Mutual Funds or the S&P 500 index do not generate a return of 10% annually. Although compounding can make almost anyone into a millionaire, it is not easy.


Most people picked the wrong stocks or panic out of the position at the wrong time like during the Subprime Mortgage crisis in 2008/09 , dot com crash year 2000.


The main reason why most people are not seeing this kind of returns is picking the wrong stocks when it comes to compounding.


The main key is to pick companies with great businesses, management team and a track record of increasing dividends over the past few years.


The Dividend Aristrocates and How to Beat the S&P500


Here’s a list of stocks in the S&P 500 that have a good average returns of 10% returns with dividend track records. Please note we are only using 10% as an average for long-term holding. (15 years and above)


Company Ticker Company Ticker
Abbott Labs ABT General Dynamics GD
AT&T T W.W Grainger GWW
Automatic Data Processing ADP Kimberly-Clark KMB
Cardinal Health CAH Lowe’s LOW
Chevron CVX Medtronic MDT
Cincinnati Financial CINF Nucor NUE
Cintas CTAS S&P Global SPGI
Emerson Electric EMR T.Rowe Price TROW
Federal Realty Inv. Trust FRT VF Corp VFC
Franklin Resources BEN Wal-Mart WMT



The Dividend Rock Stars for the past 61 years 


You will notice the companies that have long consistent track record of giving dividends have one thing in common. They are neither exciting nor in the high growth industry like tech. In other words, those companies sound boring, but boring is good. Warren Buffett’s portfolio is full of stocks that pay dividends .

Warren Buffett says ” If the company will be here in 20 years then it is probably a good business’.


Company Ticker
American States Water Company AWR
Dover Corp DOV
Northwest Natural Gas NWN
Parker-Hannifin PH
Genuine Parts GPC
Proctor & Gamble PG


What is the easiest way to invest in Dividend Aristocrats?


ETFs. Here’s the top three ETFs that focuses on buying companies with dividend growth potential.


(VIG ) Vanguard Dividend Appreciation ETF VIG offers a diversified portfolio of highly profitable U.S. dividend-paying companies.This fund has the widest range of dividend paying companies, about 188 of them.


SDPR S&P Dividend ETF (SDY) holds about 110 stocks that have been consistently increasing dividends for the past 20 years.


(NOBL) ProShares S&P500 Dividend Aristocrats ETF holds about 50 plus stocks only that have raised their dividends for the past 25 years in a row. All those stocks are listed in the S&P 500.