Dividend or income investors may not be well publicized and we hardly read about them in media.
However, one of the real life stories that caught my attention is the story of Grace Groner, a secretary who worked at Abbott Laboratories since 1931.
She bought 3 Abbott shares in 1935 and never sold her employer's shares. When she passed away at age 100 in 2010, her estate was worth USD7 million. She left Lake Forest College (her alma mater) a gift of USD 7 million, to be used for students' scholarships. What a legacy!
Imagine a USD7 million placed in an instrument that generate 5% income return, we are talking about USD350k of portfolio income that could be channeled to serve more students in terms of scholarship.
What she basically did was to reinvest all dividends received into her employer's shares and given long enough time, the power of compounding set in and her investment snowballed subsequently.
She taught us the importance of dividend reinvestment to grow one's wealth and invest for the long term. She also happened to hold a winner in her investment holding. Abbott Laboratories is also known for its track record in rewarding shareholders with rising dividend in the past decades.
However, not all investors are lucky, ask those who lost their retirement or investment funds when their employers went bankrupt i.e. Enron and Bear Sterns. They got burnt and if their holdings in employers' shares were the only investment they had, their golden years could have turned into a nightmare.
It took 75 years for Grace Groner to grow her small investment of USD180 into USD7 million. How is it possible for such a small amount of money to grow into millions?
The answer lies in the power of dividend reinvestment, long term investment horizon and holdings of a successful company's shares. Not forgetting that the share price of Abbott has also increased over time.
Ultimately, she enjoyed the best of both worlds.
She enjoyed earning more dividends and share price appreciation over time by holding to a winner and showed that an average Joe could also amass a sizable amount of wealth!
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