Dividends4Life: The Power Of 'Double Compounding'

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The Power Of 'Double Compounding'

Posted by D4L | Friday, July 20, 2012 | | 0 comments »

Albert Einstein once declared that compound interest was "the most powerful force in the universe." This quote, along with the common sense behind it, has inspired many long-term investors to rely on income generating investments such as dividend stocks, letting reinvested dividends continue to compound instead of relying solely on capital gains. As dividends continue to accumulate, both on the original shares as well as on the shares acquired from previously reinvested dividends, a snowball effect starts to occur, leading to quickly increasing streams of income.

However, dividend growth stocks add yet another level of compounding, as those investing in these stocks benefit from both reinvested dividends and dividend growth. As dividends can be reinvested to purchase new shares, both the original shares and the newly purchased ones all benefit from the higher dividend, leading to a form of "double compounding."

Source: Seeking Alpha

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