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Compound Growth Rates and Yield
Jim Thomas
National Volunteer
BETTERINVESTING NATIONAL CONVENTION
Disclaimer
•
The information in this presentation is for educational purposes only and is not intended to
be a recommendation to purchase or sell any of the stocks, mutual funds, or other
securities that may be referenced. The securities of companies referenced or featured in
the seminar materials are for illustrative purposes only and are not to be considered
endorsed or recommended for purchase or sale by BetterInvesting™ National Association
of Investors Corporation (“BI”) or the BetterInvesting Volunteer Advisory Board, its volunteer
advisory board (“BIVA”). The views expressed are those of the instructors, commentators,
guests and participants, as the case may be, and do not necessarily represent those of
BetterInvesting™ or BIVA. Investors should conduct their own review and analysis of any
company of interest before making an investment decision.
•
Securities discussed may be held by the instructors in their own personal portfolios or in
those of their clients. BI presenters and volunteers are held to a strict code of conduct that
precludes benefiting financially from educational presentations or public activities via any
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Any violation is strictly prohibited and should be reported to the President of BetterInvesting
or the Manager of Volunteer Relations.
BETTERINVESTING NATIONAL CONVENTION
NAIC Principles
• Invest Regularly
• Reinvest All Earnings
• Invest in Quality Growth Companies
• Diversify to Reduce Risk
BETTERINVESTING NATIONAL CONVENTION
What are “Earnings”
• Proceeds from companies you sell
• Earnings produced by companies
you own, which are either …
– Paid to you as dividends, or …
– Retained by the company and
reinvested your behalf
BETTERINVESTING NATIONAL CONVENTION
Why Reinvest Earnings?
• Compound Growth!
• Money (earnings) not invested
doesn’t grow
• Reinvesting means taking money
produced by an investment and
investing that money too (not
necessarily in the same thing!)
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Example
• $100 investment with 6% price
growth and 4% dividend yield
– Investment worth $106 after one year
– Plus $4 received as dividends
• Reinvesting the $4 allows $110 to
grow (rather than just $106)
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Example Results Over Time
• $100 investment
• 6% price growth
• 4% dividend yield
• Dividends
reinvested vs.
putting them “in a
mattress”
Years
Dividends
Reinvested
Mattress
5
10
$161
$259
$156
$232
15
20
25
30
$418
$673
$1,083
$1,745
$333
$468
$649
$891
40
50
$4,526
$11,739
$1,648
$3,003
What about the SSG?
How do Dividends, Reinvesting and
Compound Growth relate to the SSG?
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Percent Payout
• Annual dividend …
• as a percentage of annual earnings
• $0.15 dividend (paid during a year)
• $1.00 earnings (during that year)
• 15% payout (i.e., 15% of earnings
were paid as dividends)
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SSG Section 3G: % Payout
• Annual dividend (F) as a percentage
of annual earnings (C), or F ÷ C.
BETTERINVESTING NATIONAL CONVENTION
Dividend Yield
• Annual dividend …
• as a percentage of dollars invested to
produce that dividend
• $3 dividend (paid over a year)
• $200 invested
• 1.5% annual dividend yield
(i.e., $3 ÷ $200 = 1.5%)
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SSG Section 3H: % High Yield
• Annual dividend (F) as a percentage
of annual low price (B), or F ÷ B.
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SSG Section 5A: Present Yield
• Dividend expected to be paid
next year …
• as a percentage of the current
stock price.
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SSG Section 5B: Avg. % Payout
• This is a judgment item;
you may want to change it.
• How does it compare with the
average from section 3G?
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SSG Section 5C:
Compound Annual Total Return
• Potential Avg. Annual Yield
• … combined with …
• Potential Annual Price
Appreciation.
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SSG Section 5C:
Compound Annual Total Return
• The computer calculates
compound return.
• Your job is to provide the
judgments that flow into this
calculation.
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