How Dividend Reinvestments Will Increase My Cash Flow Over The Coming Year

In my Dividend Growth Portfolio [DGP], which I have maintained as a demonstration of dividend growth investing since 2008, I collect dividends in cash and reinvest them when the cash reaches $1000. This year, I have made 3 such reinvestments so far. Each reinvestment resulted in the addition of about $1000 worth of shares to an existing position. I want to talk about what I call the "second layer of compounding": The additional income that is generated when you reinvest dividends. The 3 reinvestments will add $136 to my income over the next 12 months. The payouts shown do not take any anticipated dividend increases into account. They are based on the most recent quarterly payouts for each stock.

The importance of this should be obvious. Even if no stock in the portfolio raises its dividend over the next 12 months, my income will be 4% higher than it would have been, assuming that none of the stocks in the portfolio cuts its dividend during that time. The story gets better. PM is about to announce its next dividend increase. In other words, the $1.00 per share shown in the table will actually be higher for their next payment, expected in October. Say they raise by a modest 5%. That means that in the next year, the increase to my income from that single reinvestment will be about $50 instead of $48. That may not sound like much, but it will be a small brick in the wall as I continue to build my income stream for eventual use in retirement.

Source: Seeking Alpha

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