Doubling Value Through Dividend Stocks

Stocks can and have disappointed investors over painfully long periods. For example, they trailed bonds over a 68-year period that ended 1871, over a two-decade stretch ending in 1949 and over 41 years that ended in early 2009, according to an article published last year in the Journal of Indexes. With 10-year corporate bonds of decent credit quality yielding less than 3%, now might not seem like an ideal time to bet on fixed income. But stock investors can prepare for another lost decade or two by latching onto healthy dividend yields.

Remember the Rule of 72. To get a not-so-rough estimate of how many years it takes an investor to double his money at a given interest rate (or dividend yield), divide the rate into 72. Assuming payments are reinvested and share prices neither rise nor fall, a 4% dividend yield doubles an investor's money in about 18 years. A 5% yield does so in a little over 14 years. A 6% yield – there are a handful of reliable-looking ones out there – is good for a 12-year double.

Source: SmartMoney

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