The Potential Income Advantage of Starting with a High ...
[Pages:2]The potential income advantage of starting with a high dividend yield
With dividend reinvestment, Portfolio A will generate more dividend income than Portfolios B and C across an investment horizon of 25 years. Although Portfolios B and C have higher dividend growth rates, their income cannot overtake a portfolio that starts with a higher dividend yield until after forty years!
Total income generated from a $100,000 investment with dividend reinvestment and excluding any price appreciation or principal loss.
$80,000
Portfolio A 4.5% Annual dividend yield 4.5% Dividend growth rate
Portfolio B 3.0% Annual dividend yield 6.0% Dividend growth rate
Portfolio C 2.0% Annual dividend yield 7.0% Dividend growth rate
$60,000
Total annual income
$40,000
$20,000
$0 Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Year 1 Year 5 Year 10 Year 15 Year 20 Year 25
Portfolio A
4.5% Initial dividend yield 4.5% Dividend growth rate
Investment value Total annual income
$100,000
$4,500
$120,686
$6,476
$160,524
$10,735
$228,487
$19,042
$353,444
$36,706
$605,317
$78,340
Yield on cost 4.5% 6.5% 10.7% 19.0% 36.7% 78.3%
Portfolio B
3.0% Initial dividend yield 6.0% Dividend growth rate
Investment value Total annual income
$100,000
$3,000
$113,783
$4,309
$140,237
$7,108
$185,144
$12,558
$267,596
$24,289
$435,494
$52,899
Yield on cost 3.0% 4.3% 7.1% 12.6% 24.3% 52.9%
Portfolio C
2.0% Initial dividend yield 7.0% Dividend growth rate
Investment value Total annual income
$100,000
$2,000
$109,179
$2,862
$126,660
$4,657
$155,799
$8,035
$207,806
$15,031
$309,831
$31,431
Yield on cost 2.0% 2.9% 4.7% 8.0% 15.0% 31.4%
These charts are for illustrative purposes only and are not representative of the performance of any particular investment. These are hypothetical scenarios and do not assume price fluctuation which can result in principal loss. Dividend yields and growth rates of an actual investment portfolio will vary over time.
Not FDIC Insured ? May Lose Value ? No Bank Guarantee
The potential income advantage of starting with a high dividend yield
Without dividend reinvestment, it would take Portfolios B and C about 30 years to generate income comparable to Portfolio A.
Total income generated from a $100,000 investment without dividend reinvestment and excluding any price appreciation or principal loss.
$16,000
Portfolio A
4.5% Annual dividend yield 4.5% Dividend growth rate
Portfolio B
3.0% Annual dividend yield 6.0% Dividend growth rate
Portfolio C
2.0% Annual dividend yield 7.0% Dividend growth rate
$12,000
Total annual income
$8,000
$4,000
$0
Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Year 1 Year 5 Year 10 Year 15 Year 20 Year 25
Portfolio A
4.5% Initial dividend yield 4.5% Dividend growth rate
Investment value Total annual income
$100,000
$4,500
$100,000
$5,366
$100,000
$6,687
$100,000
$8,334
$100,000
$10,385
$100,000
$12,942
Yield on cost 4.5% 5.4% 6.7% 8.3% 10.4% 12.9%
Portfolio B
3.0% Initial dividend yield 6.0% Dividend growth rate
Investment value Total annual income
$100,000
$3,000
$100,000
$3,787
$100,000
$5,068
$100,000
$6,783
$100,000
$9,077
$100,000
$12,147
Yield on cost 3.0% 3.8% 5.1% 6.8% 9.1% 12.1%
Portfolio C
2.0% Initial dividend yield 7.0% Dividend growth rate
Investment value Total annual income
$100,000
$2,000
$100,000
$2,622
$100,000
$3,677
$100,000
$5,157
$100,000
$7,233
$100,000
$10,145
Yield on cost 2.0% 2.6% 3.7% 5.2% 7.2% 10.1%
These charts are for illustrative purposes only and are not representative of the performance of any particular investment. These are hypothetical scenarios and do not assume price fluctuation which can result in principal loss. Dividend yields and growth rates of an actual investment portfolio will vary over time.
There are no guarantees that dividend paying stocks will continue to pay dividends. In addition, dividend paying stocks may not experience the same capital appreciation potential as non-dividend paying stocks.The value of equity securities will rise and fall. These fluctuations could be a sustained trend or a drastic movement.
Not FDIC Insured ? May Lose Value ? No Bank Guarantee
50127 (3/21) Federated Investment Counseling
? 2021 Federated Hermes, Inc.
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