A lot of the low yield stocks grow those dividends every year by a decent rate, double-digit returns many times. So the initial investment keeps producing a growing income beyond inflation, even though the yield at anytime you buy is low - most likely because the stock price appreciates too.MashGhasem wrote: ↑ Thanks. Interesting read. Liked her comment on RRSP's.
One thing that keeps coming up with dividend investors is the low portfolio yield. I don't understand why so many people have such low yields. Hers is only 3.4%. After all these years and after all those div hikes why only 3.4? That means she either didn't invest in purely dividend payers at the start (she did mention she started with mutual funds) or she's way too diversified. Even the safest assets (take the big 5 banks) are paying 4-5.1% and this is after the recent run-up!!
Even if she's talking real rate of return after inflation, it's still too low.
So it is not a 3% annual return. It is a dividend stream that starts at 3% and grows, say, at 7% per year. Buy $100,000 of it and the year one dividend is $3,000. Compound the 7% growth for 30 years and the year 30 dividend is about $24,000. If the stock still yields 3% you've got a big capital gain. If it now yields 6% at year 30 because interest rates went up, the stock part is you've still got a quadruple in capital gain. Dividend growth is the main driver of returns beyond inflation.