Income Investing 101
Many retirees open a bank account for dividends. Every stock they buy they do the paperwork directing the share registry to pay any dividends into that bank account. Non-retiree investors, as well as some of the wealthier retiree investors, will elect instead to have the registry use the dividend to buy more shares under the Dividend Reinvestment Plan if there is one.
For those that rely on income the formula goes like this:
Assume a 4.5% yield from the stock market - this is your justification, a factual table of the capital and dividend returns from the All Ordinaries index over the last 40 years.
As you can see the average contribution to the All Ordinaries total return from compounded dividends before franking is about 4.5% over any time period...Continue Reading