The power of dividend investing lies not just in buying stocks that pay out dividends. It’s the compounding effect from reinvesting your dividends to buy more shares of the same company. Along the way, you get a bonus when the business declares higher dividends, thus helping you to accelerate the buildup of your passive income stream as you approach your retirement. Need an example to illustrate this concept? Look no further than OCBC Ltd (SGX: O39). Singapore’s second-largest bank is a dependable payer of dividends and has also grown its dividend in recent years. Assuming you invested S$20,000 in shares of the lender a decade ago, let’s see how much dividends you will end up with.

A dividend machine

Let’s go back 10 years when OCBC was trading at around S$10.46 per share. A S$20,000 investment would have bought you around 1,900 shares of the lender (you will spend roughly S$19,874). Next, we look at how much dividend OCBC paid out back then....