With a relatively small portfolio, dividends don’t really add up to a lot. After all, 5% of a small number is a very small number, and investors with a few thousand, or less than $100,000, invested, won’t really notice a huge bump from a dividend yield of 5% or 6% over the course of a year.
That said, a portfolio of any size can really benefit from the power of compound growth, with growth both within a portfolio (from reinvesting those dividends into more dividend-producing stocks) as well as with the dividend itself (many dividend stocks raise their dividend consistently, year after year, providing investors who buy and hold such securities with a dividend yield that actually increases over time).
As a portfolio grows, dividends become more meaningful, and investors are likely to take notice near retirement, as the need for income on a consistent basis becomes more prescient. Those thinking of investing for retirement with a decent time frame (say, 10 or 20 years) should consider the yield, as well as the dividend growth rate, of equities for investment purposes, to have the required income in place for retirement.
Having a set value coming into a retirement account in the form of dividends takes a bit of backward-induction, however the amount needed to be invested over a given amount of time can be calculated out, varying on how much one wishes to receive in retirement in the form of dividends.
The best time to start a snowball is right now, so get out your calculator and find out how much is needed to be stashed away each year.
Invest wisely, my friends.
