Given the choice of taking a cool million pounds or a penny piece, surely there’s only one answer. Grab the million and wonder why somebody was daft enough to offer to you the choice in the first place.
A million pounds isn’t worth as much as it was but would still be life changing. Whereas a penny…? It doesn’t even buy a chewy sweet these days. But let’s do some sums.
Compound growth starts slowly
Day
Amount
1
£0.01
2
£0.02
3
£0.04
4
£0.08
5
£0.16
6
£0.32
7
£0.64
8
£1.28
9
£2.56
10
£5.12
11
£10.24
12
£20.48
13
£40.96
14
£81.92
15
£163.84
As the table shows, a penny rolls up very slowly in value. By day 10, with roughly a third of the month gone, it’s grown to just £5.12. Which is still £999,994.88 short of a million. No contest! But let’s press on.
Day
Amount
16
£327.68
17
£655.36
18
£1,310.72
19
£2,621.44
20
£5,242.88
21
£10,485.76
22
£20,971.52
23
£41,943.04
24
£83,886.08
25
£167,772.16
By day 16, with half the month gone, that 1p has increased to £327.68. But look at day 25! After that, everything goes gangbusters, as my final table shows.
Day
Amount
26
£335,544.32
27
£671,088.64
28
£1,342,177.28
29
£2,684,354.56
30
£5,368,709.12
31
£10,737,418.24
As the month draws to a close it’s giant steps all the way. By the end of the month I’ve got a mighty £10.7m. That’s more than 10 times as much.
That penny takes time to get going, but by the end, it’s a phenomenon. This is a valuable lesson for stock market investors, because it shows how small sums can compound and grow over time.
DCC’s a Dividend Aristocrat
Obviously, no stock is going to double every year, let alone every day. But some really put these compounding principles to work, by increasing their dividends for year after year, while their share price grows too.
FTSE 100-listed sales and marketing firm DCC’s (LSE: DCC) one of them. It’s a true Dividend Aristocrat, having hiked shareholder payouts every year for three decades. DCC’s a hard company to categorise as it offers marketing services to global businesses and is also one of the largest bottled gas suppliers in the world.
Its dividend policy’s a lot easier to understand. It’s increased shareholder payouts at an average rate of 10.8% every year for the past decade, according to AJ Bell. The fact that it’s been hiking dividends for 30 years suggests there’s a fair chance it will continue to do so, although these things are never guaranteed.
The current yield looks modest at 3.84%. The DCC share price has grown a solid 15.84% over the last 12 months. This lifts the total return over the last year towards 20%.
Of course, share price growth isn’t guaranteed either. Falling energy prices could hit revenues. So could currency swings as this is a global business. But over the longer run I’d expect its dividends and stock returns to compound nicely.
Investing in a spread of stocks like this one won’t make me £1m in 30 days. But over 30 years, there’s a fair chance it might.
The post Would I do better taking a million pounds now or 1p that doubles every day for a month? appeared first on The Motley Fool UK.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
