I decided to play with my two stocks in a Roth IRA, Altria (MO) and McDonalds (MCD). My initial investment in both is quite small, but looking at what they can do in the future is quite amazing. The first chart below basically shows what happens with my initial investment only with dividends reinvested:
This second chart shows what happens if I added $2000 per year to the account:
The results for both are quite amazing. After 25 years with my initial $2000 investment, I would be earning $1500 annually. That would mean an initial investment yield of 75%. That is quite staggering. Also, the investment would be at $35,000.
Now if I added $2000 per year, after the same 25 years, the value would be at $281000 and I would be earning nearly $13,000 per year on dividends. I like the sound of that.
For both charts, I used a 7% dividend growth rate, which is quite conservative for the 2 stocks. Both MO and MCD have been averaging over 10% dividend growth rate over the past decade.
This is quite a handy tool to use and I will be going use it as a tool in my investment research for dividend plays.