Dividends can and have acted as an inflation protector in a way that CD’s, Bonds and other so called fixed assets cannot. Inflation has grown at an average of 4% annually, which means that in a little over 18 yrs, prices would have doubled. While you are collecting the interest income from your CD’s or Savings Bonds the principal that you have invested is slowly being eaten away at an average of 4% per year!

If you don’t believe it, think about what the prices were in 1985 for a movie ticket ($4) and today ($10). How about an average automobile in 1985 ($7,000) and today ($20,000) or even a haircut for ($6) and today ($20). That was in the 1980’s but what about the 90’s? In 1996 gold was approximately ($275) per ounce and today ($600) or how about a barrel of oil for ($10) in 1996 and today at $60? These costs have more than doubled and so have many others like insurance, housing, medical care, food,beverages etc.

Investors turn to CD’s, Bonds and other fixed assets for many reasons. One of the key reasons is to receive a current income stream. However, they sometimes don’t realize that there are many key factors that should be considered when investing such as:

• CD’s, Bonds and Money market accounts provide only 1 income stream -- the interest on your principal
• Well chosen qualified dividend paying stocks provide 3 simultaneous income streams -- the current dividend income, increasing future dividend income and the share price appreciation
• The maximum tax on interest income from CD’s, Bonds and Money market accounts is up to 35%
• The maximum tax on Qualified Dividend Income is only 15%

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Take two hypothetical 10 year investments: The first is a qualified dividend paying stock that has a dividend yield of 5%, increases its dividend 10% per year and its share price increases 8% annually. The second is a CD/Bond that pays a yield of 5%. Let’s assume you invest $100,000 into each equally with inflation running at (4%) per year. Below is what happens over the 10 year period:

• The principal of the dividend stock at the end of only 10 years has nearly doubled to $199,896 while the CD/Bond has remained at $100,000
• The principal of the CD/Bond inflation adjusted at (4%) per year at the end of 10yrs is now worth only $66,480
• The dividends paid for the dividend stock have increased by 10% per year, increasing the yield to 11.4% in year 10
• The cumulative 10 year annual income paid is more than $28,000 higher with the dividend stock

Owning the right diversified basket of dividend paying stocks can provide a tax efficient investment that provides a current income stream, a rising income stream and inflation protection while the principal has the opportunity to grow.

Compounding dividends are the investment that makes money, added to the money that the money has already made. By creating this virtual cycle, you will have created your very own dividend money machine. Dividend reinvestment will bring you more shares, each of which will earn more dividends.

Dividends are normally paid quarterly and by systematically reinvesting, you obtain dollar cost averaging with an increasing principal amount without adding any new cash! For investors who do not need the current income and choose to reinvest the dividends received, they have truly created their very own money machine.

Take a hypothetical example of an investor who owns 10,000 shares of a $10 stock that yields 5% and reinvests the dividends paid:

• *By harnessing the power of dividend reinvesting, in less than 15 years, the investment would have doubled in value to over $200,000 and shares owned to over 20,000!
• This amazing return does not even take into account any dividend increases or even any stock price appreciation. The return is solely based on the dividend reinvestment
• Locating a diversified basket of stocks that pay a dividend, have a history of paying a dividend and increase the dividend regularly is a great step towards creating your own money machines

When someone asked Albert Einstein what was the most important thing he learned from mathematics, he replied: “Compound interest. It’s the most powerful force on earth.”

• Dividend paying stocks that have paid dividends consistently for 5yrs or more which demonstrates that paying dividends is a priority
• Dividend paying stocks that have increased their respective dividend payouts by 25% or more over the last 5 yrs which demonstrates growth
• Dividend paying stocks that carry a market cap of greater than $1B which can reduce volatility
• Dividend paying stocks that have a debt to equity ratio less than 70% which reduces risk
• Dividend paying stocks that have a dividend yield higher than 1.50% which demonstrates a yield higher than normal market averages
• Dividend paying stocks that have a dividend payout ratio less than 70% which demonstrates the capacity to continue to pay dividends

Whether you are an investor in your 20’s, 30’s or 40’s and have a 50yr time horizon or an investor in your 50’s, 60’s or even 70’s and have a 20yr plus time horizon -- why wait? At ca.dividendinvestor.com ™ we often hear,“if I had only known about this earlier” and incredibly, we hear this from investors in all ages ranging from their 20’s to their 70’s!

The only obstacle between you and dividend investing is well researched quickly accessible dividend data.