We recently asked subscribers if they had any success with Dividend Reinvestment Plans (DRIPs). We know our readers are hungry for super-safe ways to grow their capital and collect steady and growing income. DRIPs are the best way to do that.

The response was overwhelming, which proves our thesis correct. For most of you, buying stalwart stocks that constantly grow dividends and reinvesting those dividends back into the stock is the best way to build your fortune. In case you’re not familiar with DRIPs, we asked Dan Ferris, our dividend and value expert, to briefly explain the process and the benefits…

[ad#Google Adsense 336×280-IA]Dan explains…

Most people know DRIPs are a great way to put your stock portfolio on automatic pilot… so it just grows and grows without you having to do much of anything.

DRIPs are simple. Most of the time, you can just call your broker up and tell him you want to reinvest your dividends. After that, you won’t have to take any action at all to have your cash dividends reinvested in the stocks that paid them. Over time, you’ll make a lot more by reinvesting dividends than you will by simply holding the shares without reinvesting…

Suppose you had a stock like Altria Group, the tobacco company, which is one of the all-time great dividend payers. It has raised its dividend every year for the last 45 years. Say you bought Altria today and wanted to reinvest your dividends…

Today, Altria’s share price is a little less than $27 and its dividend yield is around 5.7%. Over the last 10 years, the dividend grew by about 8.5%. Let’s assume it keeps up that modest growth rate.

Suppose you just buy Altria today and don’t reinvest your dividends. Suppose the share price grows 5% a year. After 10 years, you’d earn a total average annual return of about 10% a year. Not bad!

But if you reinvest the dividends, you’ll earn about 12.6% a year. That’s great. It’s the difference between a $2,700 investment that turns into $7,000 in 10 years without reinvestment… and turning that same $2,700 into more than $8,700 with reinvestment.

But it actually gets even better for the most patient investors. If you kept on reinvesting at those rates for another 10 years, something really amazing would happen. Your return without reinvestment would fall to about 9% per year for the 20-year period… and your return with reinvestment would rise to about 14% a year for the 20-year period. You could turn an investment of a little less than $2,700 into more than $37,000.

When you combine great businesses that grow dividends with dividend reinvestment, time is the investor’s best friend. With just about any other strategy, time is a potential killer because you’re not compounding at the highest possible rates. And let’s face it, with the government borrowing and printing money at the highest rates ever, you MUST earn as big a return as possible on your money. You must beat inflation.

For the overwhelming majority of investors, buying World Dominating Dividend Growers like Altria Group and combining them with DRIPs is the easiest, safest way to achieve the highest possible long-term returns.

Altria has been in The 12% Letter portfolio since December 2008. It’s returned a total of 94% in dividends and capital gains. More than 30% was from dividends. With dividend reinvestment, you’d have made about 37% a year during that time. A $1,650 investment (100 shares) would now be worth $3,667, a 122% return.

[ad#article-bottom]Currently, Dan has two World Dominating Dividend Grower stocks in his 12% Letter portfolio that are perfect for DRIPs. One of the stocks has grown its dividend around 12.25% a year for the last several years. Dan thinks you can more than double your money in 10 years – in this super-safe, blue-chip stock – by simply buying and holding.

Dan believes his other favorite DRIP candidate, another safe blue-chip, could nearly triple in 10 years with dividends reinvested. For most investors, buying, holding, and reinvesting the dividends is the best way to invest. You do nothing… simply let time and compounding do the work.

To access Dan’s method for turning 2%-6% dividends into 15%-55% dividends on the same exact shares, click here


— Sean Goldsmith

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Source:  The Growth Stock Wire