By Lucas Downey, Contributing Editor, TradeSmith Daily
A year ago this week, something extraordinary happened.
On Nov. 30, 2022, OpenAI released ChatGPT, an artificial intelligence (A.I.) chatbot that gives detailed responses to user prompts.
I'd argue it's one of the most groundbreaking A.I. tools ever released.
And one public company allows you to invest alongside this megatrend: Microsoft (MSFT). Microsoft began a public partnership with OpenAI earlier this year worth over $10 billion, making them the closest thing to investing in the company behind ChatGPT.
Microsoft is a savvy company, and history shows it's an even savvier investment.
That's why, to celebrate the one-year anniversary of ChatGPT, I'm going to share my personal investment journey with Microsoft that began in 2017.
I tell this story to demonstrate why reinvesting dividends is the easiest way to dependably grow your wealth. It's so simple, anyone can do it. All it takes is a bit of time and patience.
Here's my real-life example of how a $7,208 investment ballooned into a $40,000 windfall…
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As investors, we are fortunate to have the greatest investor of all time teach us how to create immense wealth.
I'm talking about the Greatest of All Time, the GOAT, Warren Buffett.
He famously once said, "My wealth has come from a combination of living in America, some lucky genes, and compound interest."
As it relates to the latter, he's exactly right. The effect of compounding on your portfolio will do wonders.
To prove it, let's walk through my Microsoft investment made back in June 2017.
Back then, shares were trading at roughly $71. As of today, those shares are now valued at $377.
Source: Yahoo Finance
That's a beautiful chart pointing up and to the right. It's a gain of 430%. Still, 430% isn't enough to turn $7,208 into more than $40,000.
To fully understand the power of compounding, take a look at the "D" signals in the lower frame of the chart.
Each of these represent a dividend Microsoft paid to investors, including myself, every quarter.
Think of dividends as a share of profits paid in cash to people who do one simple thing… hold shares of the stock.
And to supercharge your stock returns, you should buy more shares of the stock with each and every dividend payment.
Brokerages call this a Dividend Re-Investment Plan (DRIP), and it's essential to your wealth-building strategy.
DRIP unveils the magic of compounding. Each quarter that you buy more shares, not only is your income compounding… but your position grows, benefitting from capital gains… and you keep your cost basis lower.
Let's look at all of my dividends from Microsoft to prove this point…
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Back in June 2017, Microsoft paid a quarterly dividend of $0.39 per share. At the time, my initial investment was 48 shares, paying me $18.72.
A couple of months later, I beefed up my position to a round 100 shares of MSFT, spending a total of $7,208.60.
Starting in 2018, Microsoft raised its dividend to $0.42, which is when I made the smart decision in December to begin reinvesting my dividends.
As you can see below, on Dec. 11, 2018, my first dividend payment was $46 (the "Cost Basis Total" column), which purchased 0.421 shares of MSFT.
As time has gone on, you'll note how each quarter's dividend payment has increased simply due to owning more shares every quarter and the fact that Microsoft raises its dividend each year:
The first dividend reinvestment was $46 and my last reinvestment was $71.65.
It may sound tiny, but those small investments start to add up. My initial purchase of 100 shares has now grown to 105.576 shares by doing absolutely nothing.
With Microsoft's last price of $377, this puts the total investment at nearly $40,000. If I hadn't reinvested my dividends, my position would be about $37,000 instead.
An extra three grand! Not bad if you ask me…
This is why I consider reinvesting dividends as the easiest get-rich strategy there is.
With dividend investing, tiny seeds become mighty trees before our eyes.
As for how to start reinvesting your dividends, log in to your brokerage and look for the DRIP options… Or, simply call your broker and ask about it.
Hopefully my story empowers you to begin your own wealth journey with strong dividend stocks.
And maybe some of you have stories of your own… Stories we'd love to hear.
Do you have a powerful dividend reinvesting story? Just send an email to feedback@TradeSmithDaily.com and we'll look to share it with your fellow readers.
Have a great week… and keep on reinvesting.
Regards,
Lucas Downey, Contributing Editor, TradeSmith Daily
P.S. You may know that I'm good friends with Jason Bodner, editor of Quantum Edge Pro and Power Trends.
If you're familiar with Jason, you know he's a very optimistic, but levelheaded guy. He's made a lot of money being right about the stocks he sees Big Money flowing into. At the same time, he isn't blind to risk — far from it.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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