Participation in Dividend Reinvestment Plans

I sometimes find it interesting to see how people structure their affairs by investing.  When you go through companies annual reports, you sometimes find how many people participate in their DRIPs.  When I read about participation in dividend reinvestment plans, I always get excited about actual real world evidence that people will be financially independent on the dividends these companies are sending them.

Given that a focus for this site has been Disney so far, we can see that for the Walt Disney Company, 287,004 shares were bought through these plans.  If you assume these shares were all bought at an average price of $100 a share, and that is just a guess that has a very good chance of being wildly off, people spent a little over $28 million buying shares through this plan.  These are people who have a very good chance of eventually having financial independence courtesy of a large shareholder position in Disney.

A 20 Year Old Can Make a Fortune through Participation in Dividend Reinvestment Plans

Someone who is in college today can make a multimillion dollar fortune by the time they retire if they have the foresight to take advantage of these plans.  When I was in college, I knew someone who started their participation in Disney’s DRIP.  By investing several hundred dollars a month, this person was buying themselves an ever-growing ownership position in Disney.  If they retire in their 60s, that will have given them over 40 years of participation in the DRIP.  If they started the plan at 20, retire at 65, and Disney achieves a 10% compounding rate over that 45 year period,  this person will turn a $300 a month contribution into a fortune worth $2,588,057.  If Disney is paying out a 2% dividend at that time, they will be getting over $51,000 a year in dividends.

I don’t know about you, but I don’t know a single retiree who would turn their noses up at an extra $51,000 in retirement.  That is money they can use to vacation in Paris, go to Epcot, dine at Club 33 in Disneyland, or give to charity.  For $3,600 a year during the early part of life, this person is buying a retirement free of stress from having to decide whether they want or eat or keep the heat on living on social security.

Anyone can get rich over the course of their lives through participation in dividend reinvestment plans.  Just about every company you can name off of the top of your head has these plans.  If you can get a collection of these plans under your belt by contributing your money to Disney, Pepsi, Johnson and Johnson, and Exxon Mobil, you can retire rich.  You can go scuba diving in Fiji, fly fishing in Mongolia, go to Yellowstone, or pick up a white water rafting hobby, all it takes is for you to make the commitment to contribute to these plans, and let time do the rest.

Disclaimer:  I have said this before and I will say it again, nobody knows what will happen over the course of 45 years.  Disney may go bankrupt, and that is the risk of investing in individual companies.  Get diversification for protection and practice due diligence, and odds are that the results will be in your favor.