Compounding: Long-Term Effects of Small Changes
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Watching your children grow day by day, the change is barely perceptible. But 15 years apart, the difference is dramatic. We can look at a stock's divided history in a similar light.
Compounding: Long-Term Effects of Small Changes

Compounding: Long-term Effects of Small Changes.

In a way, observing a stock's dividend growth is similar to watching your children grow, where day by day, month by month, the physical change in your child's appearance is barely perceptible. But in two pictures, 15 years apart, the difference is dramatic. We can look at a stock's divided history in a similar light.

In this case: Enterprise Products Partners (EPD), a public traded company. EPD raised its dividend four times last year, each time by half a penny. I think most people see those small dividend increases and not think much of it. They're not likely to be impressed by it. But what is really important is the long term effect of small, incremental changes inside a portfolio. EPD has raised its dividend by a penny or less for the majority of the past 60 quarters. If you measure the growth over those 60 quarters, what you will find is that income growth, which despite increasing by less than a penny a quarter, has risen 161% over those 15 years.

As a comparison, the [cumulative] inflation has risen 36% during the same period. So income from this one stock has grown more than four times the rate of inflation.

Let's assume you invested $100 in EPD at the end of 2000 at a share price of $31.44 and received 3.18 shares of their stock. During 2001, EPD paid out $2.31 per share in dividends. So your $100 would have earned you $7.35 that year, or 7.35% yield on your original investment. Fifteen years later, EPD paid $6.04 per share, adjusted for stock splits. Your investment has now generated $19.21 in income, or 19.21% yield on your original investment. Your income yield on original investment has grown by 161% in 15 years. This is a hypothetical illustration for the powers of compounding, assuming small but consistent dividend increases.

© 2018 Miller/Howard Investments.

Investment products: are not FDIC insured - May lose value - Are not bank guaranteed

Opinions and estimates offered constitute Miller/Howard Investments' judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. All investments carry a certain degree of risk, including possible loss of principal. It is important to note that there are risks inherent in any investment and there can be no assurance that any asset class will provide positive performance over any period of time. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass.

The information above is from sources deemed to be reliable and is provided strictly for the convenience of our investors and their advisors. These materials are solely informational. Legal, accounting and tax restrictions, transaction costs and changes to any assumptions may significantly affect the economics of any transaction. The information and analyses contained herein are not intended as tax, legal or investment advice and may not be suitable for your specific circumstances; accordingly, you should consult your own tax, legal, investment or other advisors, at both the outset of any transaction and on an ongoing basis, to determine such suitability. Any investment returns, past, hypothetical or otherwise, are not indicative of future performance. Investment Decisions: Do not use this report as the sole basis for investment decisions. Do not select an allocation, investment discipline or investment manager based on performance alone. Consider, in addition to performance results, other relevant information about each investment manager, as well as matters such as your investment objectives, risk tolerance and investment time horizon.

Past performance does not guarantee future results.

DISCLOSURE

Investment products: are not FDIC insured - May lose value - Are not bank guaranteed

Opinions and estimates offered constitute Miller/Howard Investments' judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. All investments carry a certain degree of risk, including possible loss of principal. It is important to note that there are risks inherent in any investment and there can be no assurance that any asset class will provide positive performance over any period of time. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass.

The information above is from sources deemed to be reliable and is provided strictly for the convenience of our investors and their advisors. These materials are solely informational. Legal, accounting and tax restrictions, transaction costs and changes to any assumptions may significantly affect the economics of any transaction. The information and analyses contained herein are not intended as tax, legal or investment advice and may not be suitable for your specific circumstances; accordingly, you should consult your own tax, legal, investment or other advisors, at both the outset of any transaction and on an ongoing basis, to determine such suitability. Any investment returns, past, hypothetical or otherwise, are not indicative of future performance. Investment Decisions: Do not use this report as the sole basis for investment decisions. Do not select an allocation, investment discipline or investment manager based on performance alone. Consider, in addition to performance results, other relevant information about each investment manager, as well as matters such as your investment objectives, risk tolerance and investment time horizon.

Past performance does not guarantee future results.