Recent news reported on CNBC.com from the US about a 92-year-old man who used to work as a petrol station attendant got me thinking recently. The man was found to have amassed an US$8 million fortune when he passed away. He did it through share investing over many decades, although the people around him didn't know.
Ronald Read was a spendthrift and even wore threadbare clothes so regularly some people thought he may have been homeless. He didn't read about how to invest in stocks – he just did it. After his death, his safety deposit box revealed records of investments in standard US stocks that anyone would have known – not small or speculative stocks.
He regularly saved and invested his money and didn't indulge in an expensive lifestyle. In the news story, it was estimated that achieving that sum was possible if a person could invest $300 a month at an average 8% rate of return over 65 years.
Picking quality companies and letting the power of compounding grow the money over time worked well for Mr. Read. Replicating that rate of return is possible if you have stocks with dividend yields of let's say around 5%, together with even a small annual share price gain of 3% – 5%.
Westpac Banking Corp (ASX: WBC) is a well-known big four bank with a stock yield of 5% fully franked. Over the past 10 years, Westpac has increased its dividend an average annual 6.9%, giving shareholders a total annualised return of around 13% over that time. Mr. Read would have approved of this one. A solid bank like Westpac could continue doing business for decades, so it may be a very good candidate.
Another solid dividend stock is Harvey Norman Holdings Limited (ASX: HVN). It may be the case retail stocks aren't doing so well right now, but the economy goes up and down through business cycles repeatedly. The household goods, electronics and appliance retailer has been around for many years, giving shareholders an 8.1% total return annually on average for the last 10 years. Trading at 18x forward earnings, the stock yields 5.4% fully franked. Over the next two years, analysts' forecasts are for about 7% annual earnings growth. So take a page from Ronald Read's playbook and possibly choose a market leader like Harvey Norman for the long term.
