Do You Want A Duck Or A Lifetime Stream Of Income?

I was at Wal-Mart on Thursday when I came across this deer, duck, dog, and bear toilet-paper holders being sold for the price of $24.97. Whipping out my phone, I took this picture to share with y’all:


Obviously, those little guys are awesome. Why would you want to live your entire life taking toilet paper from metal placeholders when you could get the goods specially delivered by a duck for the rest of your life?

A question like that deserves a thoughtful response.

While duck toilet-paper holders are admittedly awesome, I also like to remember that it’s awesome to be a part-owner in an excellent business that feeds me cold, hard cash every three months and usually raises that amount with the passage of time (the raises typically come once per year).

Right now, General Electric trades at a little over $24 per share. Each share is currently pumping out $1.40 per share in profits, and shareholders currently see $0.76 worth of those profits based on the current distribution allowance agreed upon by the Board of Directors.

At first blush, it may seem like buying the duck is the winner. It can give you all sorts of happiness every time you’re in the bathroom, while the price of that General Electric share will only squiggle around a couple bucks this year and pay you $0.76 in income, which is enough to buy you a candy bar at the Wal-Mart checkout aisle. If it is simply the duck vs. the fluctuating letter “GE” with a “1” next to it on a computer screen (oh, and a Reese’s Candy Bar), the duck is going to win every time.

But the comparison gets a lot more interesting when you adjust for the passage of time. Over the next forty years, that duck placeholder is going to get kind of nasty—time is no friend of bathroom equipment, and eventually, my duck buddy will be worth $0 (in fact, some may even argue that’s what it is worth once I leave Wal-Mart and take it out of the box).

But with that one General Electric share—I will benefit from three things happening to that share that are going to make me richer: I’ve got a little over 3.15% of my purchase price pumping me out starter income, I’ve got the prospect of long-term dividend growth that may increase the amount of money I receive each year, and I’ve got the prospect of long-term earnings growth that will take the share price upwards over the long term.

Think about how this could potentially work out over the long-term if General Electric grows its dividend at 10% per year, grows its earnings at 10% per year, and trades at the same valuation 35 years from now. Without dividends reinvested, that would become $839. With dividends reinvested, it would become $1,679.

Obviously, this post isn’t really about ducks or putting your money into General Electric. It’s about keeping in mind the opportunity costs of your actions. Each dollar in your wallet represents more than just that dollar—why?—because it could immediately be turned into nickels and pennies of immediate annual income, which could grow into quarters and Kennedy halves once you give them a bit of time.

If you have a 35 year investing horizon, and if you believe that you can achieve the same investment returns as the Dow Jones from 1926 to 2005, then each dollar in your pocket today could increase 35x without dividends reinvested, and increase something like 69x fold with dividends reinvested. A successful financial life is all about taking advantage of time, growth rates, and the amount of money invested. If you keep those variables swimming in your head, you will resist the urge to spend foolishly because you know it is the equivalent of the farmer throwing away his perfectly good seeds into a trash can.

Originally posted 2013-09-29 01:35:29.

Like this general content? Join The Conservative Income Investor on Patreon for discussion of specific stocks!

6 thoughts on “Do You Want A Duck Or A Lifetime Stream Of Income?

  1. falconcowboy says:

    Sorry, Tim. I normally completely agree with you, but the thought of a little friendly plastic black lab greeting me every day distributing little paper squares …. that's just too good to pass up! You have more impulse control than I do! 🙂

  2. Tyler says:

    Tim, thanks for always putting savings and investing advice into terms that are so easy to relate to and apply to every day situations. It's one thing to advise readers to save and invest, it's another to paint such an applicable picture so we can use the advice from day to day. Maybe today it's a duck TP dispenser, maybe tomorrow it's an unnecessary new pair of shoes, maybe the next day it's an extravagant lunch out when my fridge is fully stocked at home. No matter what the day's "duck" is, it's never going to give me the kind of long term return that dividend-paying stocks are, so it's good that I slow down and evaluate the opportunity cost carefully.

    This kind of down to earth advice is what keeps me coming back to your blog daily. Thanks!

  3. Jon (aka conkjc) says:

    Great article as always Tim. I read about Buffett feeling that way alot (opportunity costs) in one of his biographies. Time and compounding of dividends are truely wonderful things.

  4. Maria Martinez says:

    It’s always useful to read such articles especially when you’re so distrustful as I am. From my own experience, there’s only one website whose authors I can believe – as for many years I’ve been following their advice and guides and I’ve never been misled.

Leave a Reply