How Dividends Change the Game for This Dow Stock

The wealth-building power of compound interest will never cease to amaze me.

It's a story of patience and attention to detail, where small differences in short time-scales add up to massive divergence over decades. And in the end, the biggest winners don't always deliver the fattest share-price returns.

Consider the case of soft-drink giant Coca-Cola (NYS: KO) . The current dividend yield of 2.7% is nothing to write home about; more than half of Coke's peers on the Dow Jones Industrial Average (INDEX: ^DJI) index deliver higher income payments right now. The payout can hardly shine the shoes of telecoms AT&T (NYS: T) or Verizon (NYS: VZ) , both of which sport dividend yields north of 4.5%.

But you sure can't beat Coca-Cola's consistency:

KO Dividend data by YCharts.

This is a textbook example of annual dividend boosts. The payout per split-adjusted share has been raised each year for the last five decades. And this is what Coca-Cola's tireless dividend growth has done for shareholders:

KO Total Return Price data by YCharts.

As you can see, Coke's stock has been a market-stomping wealth generator in its own right. But reinvesting dividends along the way would have doubled your returns over the last 25 years.

And some people wonder why master investor Warren Buffett owns such a large stake in Coca-Cola. There's no big secret here: Coke is a cash machine on wheels, and the generous dividend train is likely to keep rolling until our grandkids retire.

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Fool contributor Anders Bylund has no positions in the stocks mentioned above. Check out Anders' bio and holdings, or follow him on Twitter and Google+. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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