The dividend reinvesting strategy is one way to build wealth over time with reduced risk. The strategy buys high quality companies in diverse industries that pay a dividend. Companies with excessive cash returns cash to shareholders in the form of dividends. These companies may not grow as quickly but their business is mature and stable. The dividend provides you the cash to invest in other companies that may be at a different stage of the business life cycle and operate at a higher growth rate. This plants the seeds for future growth. Over the long term the small snow ball becomes bigger and additional wealth is generated.
Dividends from ETF
There are ETF that contain companies that pay dividend. The S&P 500 index of companies pays a dividend yields about 2%. There are other ETFs that have a higher concentration of high dividend yield companies. The Schwab US Dividend Equity ETF (SCHD) tracks the Dow Jones U.S. Dividend 100™ Index and currently has a 3.23% yield. SPD S&P Bank ETF (KBE) tracks the KBW Bank Index and yields 2.44%. iShares Globla REIT ETF (REET) has expense ratio of 0.14% and returns 3.94% and invests in developed and emerging countries. iShares Core US REIT (USRT) invests in US real estate and yields 3.49% and .08% expense ratio. Schwab U.S. REIT ETF (SCHH) is similar and has expense ratio of .07% and yields 3.1%.
Dividends from individual companies
You can also combine EFTs with owning shares in individual companies to build up a portfolio of companies with high dividend yield.
Kim Realty Corp (KIM) currently trades at 21.64, PE 57.35, and yields 4.26%, Debt to Equity 74.31%, revenue (TTM) 1.713B.
Pfizer (PFE) as of this writing trades at $47.77, PE 9.06, and yields 3.35%, Debt to Equity 39.59%, revenue (TTM) 99.676B
Citigroup Inc (C) is at $47.81, PE (TTM) 6.45, Forward PE (NTM) 8.13, Revenue (TTM) 61.528B, Debt to Equity 250.08%, and yields 4.26%.
Main Street Capital Corp (MAIN) $37.78, PE (TTM) 11.84, Forward PE (NTM) 10.98, Debt to Equity 102.98%, Dividend Yield 6.99%
International Business Machines (IBM) 147.41, PE (TTM) 91.04, Forward PE (NTM) 15.90, Revenue (TTM) 60.53 B, Debt to Equity 253.43%, Dividend Yield 4.48%