Compounded returns are perhaps the greatest tool investors have been given.
As we highlighted last week, this gift has made it possible for investors to turn a measly $10,000 into more than $1 million in just under 20 years.
And provided that you pick solid stocks that are trading at reasonable prices, it’s not even that difficult to achieve!
All that would be required to do so is a little patience, self-control and a small but regular contribution.
What we didn’t mention in that article however, is that dividends are one surefire way of helping you get to that target, possibly even sooner than in 20 years…
While there are of course no guarantees of that happening, compounded dividends are one of the best ways to pump up your sharemarket returns.
And we Aussies are incredibly lucky when it comes to dividends, because Australian companies are amongst the highest yielding in the world!
For instance, take a stock like Telstra Corporation Ltd (ASX: TLS). Even though its shares are hovering near a 10-year high, it still yields a massive 5.3%, fully franked. Grossed up, that’s a yield of 7.6%.
When you combine that with the possible share price appreciation as well, the results can be truly fantastic.
Now imagine if the company gradually increased its dividend distributions over the years while its share price continued to climb higher.
The returns would only get better and better as time goes on.
Now, as I said before, it is possible to turn $10,000 into $1 million in just under 20 years, but consider what could be achieved if you were to invest $50,000 straight up.
You’d be right in thinking the returns would be much, much better.
In fact, if you were to invest $50,000 today as well as a monthly $1,100 and achieved the market’s average annual return of 12% over the next 20 years, you’d be sitting on a treasure chest worth $1,433,407.
Alternatively, it would take you just over 17 years to make it to your first million.
With that in mind, you might be wondering which stocks you should look at targeting if you had $50,000 to invest. My fellow Motley Fool writer Owen Raskiewicz recently named the three stocks he would buy if he had $50,000 to spend, but if I had the same amount of capital, here are the three companies I’d be having a closer look at…
1) Coca-Cola Amatil Ltd (ASX: CCL) is definitely a company to look at. Although it has faced a number of strong headwinds over the last year or so, its brands remain amongst the strongest in Australia, if not the world. With shares now trading at around $9.33 each (nearly 40% below last year’s all-time high), the risks seem to now be priced into the shares, leaving less downside risks and greater upside potential. In addition, it is forecast to yield a massive 4.9%, franked to 75%!
2) Westfield Corp (ASX: WFD) was created as a result of the Westfield restructure and now owns and operates all of Westfield’s international shopping centres, with the exception of those in New Zealand. It is the company’s heavy exposure to the recovering economies of the US and UK as well as its box-seat position to benefit from a falling Aussie dollar that make it so appealing. It is expected to distribute roughly US24.6 cents per share (cps). Based on today’s currency translation, that equates to 26cps, or a yield of 3.5%.
3) Webjet Limited (ASX: WEB) is the riskiest stock to make it to this list due to its size (market capitalisation of just $237 million), but is still deserving of its spot. Webjet is in a leading position to benefit as more and more travellers choose to organise their travel plans online – including flights, hotel booking and car hires. While its shares were recently trading near a two-and-a-half year low, it has made a small recovery but there is still plenty of time to buy. In addition, it offers a grand 4.5% fully franked dividend yield.
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Each of these stocks could help significantly boost your wealth over the coming years. Out of the three, I currently only own Coca-Cola Amatil, although I am also very intrigued by Webjet.