If we take a “big picture” look at any of us are trying to accomplish when we invest, we are almost always trying to set aside some money today with the expectation that we will have even more money during some distant tomorrow. That’s straightforward enough. If we thought that a $10,000 investment today would only be worth $9,000 in 2016, we wouldn’t do it. The tricky part that deters some people from investing is the fact that it would be more enjoyable to spend $1,000 today buying good pub food, St. Louis Cardinals baseball tickets, or Bruce Springsteen concert tickets. Those experiences provide real utility, and every dollar you invest today also means, by definition, you are not consuming something.
Although I usually focus on the reinvestment of dividends, there is a nice alternative that might fit the needs of some investors: you have the option and flexibility to take your dividends in the form of cash today to meet your living expenses.
If you follow that option, you are receiving immediate gratification every ninety days for your decision to invest in a stock.
Right now, BP trades at about $43 per share. The purchase of 200 shares would cost about $8,600. That would give you $432 in annual income, distributed quarterly in $108 installments that you receive 90 days (and since the oil giant has resumed its annual dividend increases since the end of the spill, it is likely that this amount will be going up annually into the future).
Even though the act of investing requires delayed gratification, the advantage of choosing a dividend-paying stock is that you can receive displays of immediate gratification in the form of cash dividends deposited into your account every ninety days thereafter. This is what makes investing fun. It’s all about making decisions today that will make tomorrow’s version of you say, “Hell yeah. I’m glad I did this. Thanks for the heads up thinking, former self.” Those $108 dividend checks could buy you a ticket to a Bruce Springsteen concert with the first payment, they could buy you two tickets to a Cardinals game and a couple hot dogs with the second dividend payment, they could buy you two fancy dinners with the third dividend payment, and so on.
That is the appeal of owning a high-quality asset. Once you acquire an ownership stake, the benefits are potentially endless. As long as oil and natural gas continue to be consumed across the globe, those profits and dividend checks should keep chugging along. When you delay gratification today, you are setting yourself up to receive a constant stream of immediate gratifications that enter your banking account every ninety days, potentially for the rest of your life if you choose well. It is entirely possible that you can turn investing in dividend stocks into a form of immediate gratification. It all comes down to what is more important to you: consumption today, or the establishment of a stream of income that enters your checking account every ninety days possibly perpetually.
Originally posted 2013-06-05 17:10:20.