Dividend stocks are a popular option for investors, and it isn’t hard to see why. These stocks provide investors with income on a regular basis, usually twice a year but in some cases quarterly.

While some investors will use these dividends as income to live from, they can also be reinvested.

It is the latter option that could help you generate significant wealth in the future if you are able to invest consistently over a long period of time. This is thanks to the power of compounding, which is what happens when you earn interest on top of interest.

For example, according to Fidelity, between 1991 and 2021, the Australian share market provided investors with an average total return of 9.6% per annum. Thanks to compounding, this means that a single $10,000 investment generating this return would have grown into $155,000 over 30 years.

And while past performance is no guarantee of future returns, this is in line with historical averages and it would be disappointing if similar returns were not generated in the future.

Investing consistently

The above example was a single investment left to run for 30 years. But what would happen if you kept investing rather than just settling for a single investment?

If you could spare a further $5,000 each year after that initial $10,000 investment, then by investing in ASX stocks and reinvesting your dividends, you could grow your wealth to $1 million after three decades if you generated an average 9.6% per annum return.

At that point, you could construct your portfolio so that it contains ASX dividend stocks that provide 5% yields. And then instead of reinvesting your dividends, you could take your $50,000 dividend pay check as a source of income to live from. All without ever having to lift a finger.

But which ASX dividend stocks could be top options?

Investors may want to look for ASX dividend stocks that have strong business models, sustainable dividends, positive long term growth outlooks, and competitive advantages. These are qualities that Warren Buffett looks for when investing, and given his track record, it’s hard to argue against this strategy.

Companies such as Goodman Group (ASX: GMG), Sonic Healthcare Limited (ASX: SHL), and Treasury Wine Estates Ltd (ASX: TWE) tick a lot of these boxes and could be worth a closer look.

The post 3 ASX dividend stocks to try and turn $10,000 into $1 million! appeared first on The Motley Fool Australia.

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}

setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

• My 3 best forms of passive income for 2023
• These blue chip ASX 200 shares are post-results buys: experts
• Why I’m more eager than ever to buy Sonic Healthcare shares following earnings
• 2 stellar ASX 200 growth shares to buy now: analysts
• 3 excellent ASX 200 shares to buy and hold for a decade: analysts

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Goodman Group, Sonic Healthcare, and Treasury Wine Estates. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/D6dr7uk

• Stock Market