How to Build Wealth in the Stock Market (in your 20s and 30s) – The Secret to Plan, Retire and Double Your Stock Market Portfolio Faster.
When it comes to building wealth in the stock market, dividend investing is the least loved of the strategies practised. This is not far from the fact that the reward is small compared to the attractive and quick gain on share price appreciations which can come in days, weeks or months. Well, that is about to change as this guide will not only teach you strategies to picking dividend stocks and earn above CBN T-Bill rates but also strengthen and help you understand key secrets to generate a regular passive six-figure dividend income in a bearish and bullish market.
Dividend Re-Investment Plan
When you receive the next credit alert from your bank and the summary of your transactions indicate that it is a dividend payment from your company’s registrar, do not spend the money, smart investors, who have successfully turned their dividend portfolio to a multi-million Naira assets, re-invest the cash, increase their holds gradually and if you own the right double-digit yielding stocks, you are clearly on track to become a dividend millionaire?
Re-investing dividend is an investment strategy that brings sustainable wealth and helps to raise investment income over time. It is one of the cheapest ways to turn your small and growing investment into a long-lasting retirement portfolio.
In one of the 6-checklists to selecting stocks to own for dividend purpose, I highlighted dividend growth as a vital criterion you shouldn’t overlook. Dividend growth stocks offer a consistent increase in dividend payout. You get an increasing amount on each unit of shares held in a company which can also get you a larger unit, hence increase your overall holding and elevate your return and portfolio value over time.
With constant fluctuation in stock price, dividend investing helps you cut through the noise and makes your returns grow exponentially.
Let us look at some stocks that paint a scenario of how you can build passive income assets faster by re-investing your dividend in stocks with sound fundamentals.
Nigeria’s biggest lender has one of the best dividend payment profile. The bank is one of the most consistent dividend aristocrats in the stock as it has been paying a cash dividend to shareholders in the last 7-10 years. The Tier-1 one lender in its latest audited result (2018) proposed a final cash dividend of N2.50 per share which 5kobo higher than N2.45 per share paid in 2017.
Going back, the bank paid N2.02 per share in 2017 and traded for N13.80. Assuming you bought 200,000 units of the bank’s stock, you would be entitled to a dividend of N404,000. Re-invest the same dividend income by buying additional shares that day, you would have 29,275 units making your total holding 229,275 units.
Furthermore, with 229,275 units, you would have also earned N630,506.25 as dividend given that the dividend per share paid in 2018 was N2.75. Re-investing the money would give you 24,157 units as the stock traded for N26.10 on the payment date, making your total shares outstanding increase to 253,432 units. Now imagine what you will also earn in 2019 given that N2.80 was proposed in the latest 2018 result.
Let us do the calculation.
Your expected dividend will be N709,609 which would boost your current units by 31,538(assuming Zenith trades for N22.5 ex-div) to 266,970 units. Your portfolio should be worth N6,006,825, up by 117% (N2,760,000 initial investment)
Leading Pan-African financial service group, UBA has been consistently increasing its dividend since 2015, another sign of a good dividend stock. The Tier-1 bank paid 60 kobo per share (from its 2015 profits) in 2016 and traded for N3.15 the same year. An investor who keyed into the stock with N315,000 would own 100,000 units of the shares, hence receive N60,000. If such investor reinvests his entire dividend that same day, he gets additional 19,047 units making his total holdings 119,047 units.
The bank paid a total dividend of 75 kobo in 2017 (from 2016 profit) and traded for N5.26. This implies that the investor received N89,285.25 and reinvesting the same amount gives 16,974 units making his total shares outstanding 136,021 units.
Going further, the bank paid a total dividend of 85k for every share held in 2018 (from 2017 profit) and traded for N11.25 implying that he would receive N115,617 and reinvesting this sum gives an additional 10,277 units making total outstanding shares of 146,298 in the bank.
As of this analysis, UBA is yet to release its 2018 audited result. The total value of the investment at N7.8 will be N1,141,124, up by 262% (from N315,000).
You can see how gains from dividend stocks can add up to generate a higher return over time if they are re-invested regularly. The strategy shared here isn’t limited to the banking sector, you can also adopt it on consumer, industrial, and insurance stocks as long they offer high-yield, pay cash dividend consistently, generate the above-average return on equity with positive cash flow and grow per share out year on year.
Disclaimer: I own UBA and Zenith bank, do your due diligence and consult your financial adviser for recommendations.