Investing is all about compounding. If you understand how compounding works, you will realize the time value of money. The more time you spend in the market, the better returns you can get for a limited investment. To give you a very crude example, Manulife Financial (TSX: MFC) is a strong dividend stock that pays regular quarterly dividends and even grows them by a 10-year compounded annual growth rate (CAGR) of 10%. It also offers a dividend reinvestment plan (DRIP), which helps you compound your returns.
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How many shares of Manulife Financial should you own to get $5,400 in yearly dividends?
If you want to get $5,400 in yearly dividends, you will have to invest $129,776. It is because Manulife Financial is giving out $1.76 dividend in 2025 in four quarterly installments. So to earn $5,400, you need 3,068 shares of Manulife that pay $1.76 in a year. At a price per share of $42.30, 3,068 shares will cost you $129,776. Your yearly income will keep growing as and when the company grows its dividend per share.
| Dividend Per Share | Total share count | Dividend Amount | Investment Amount at $42.30 per share |
| $1.76 | 3,068 | $5,400 | $129,776 |
How the power of compounding works in Manulife Financial
If you don’t have $129,776 to shell out, you can get a $5,400 yearly income by investing only $25,000 today using compounding.
A $25,000 investment will buy you 581 shares of Manulife. If you opt for a DRIP, the company will automatically reinvest the dividend money and credit more shares in your account. You save on brokerage as you are getting the shares directly from the company. Manulife stock is trading closer to its lifetime high, with not much upside potential. Also, we will take a conservative assumption that the company’s dividend growth will slow from 10% to 8% in the coming years.
| Year | Manulife Financial Dividend/Share | DRIP Shares Bought at $43/Share | Total Share Count | Annual Dividend Income | Pace of Dividend Growth |
| 2025 | $1.76 | 581 | $766.92 | ||
| 2026 | $1.901 | 17.84 | 598.84 | $1,138.27 | |
| 2027 | $2.053 | 26.47 | 625.31 | $1,283.67 | $145.40 |
| 2028 | $2.217 | 29.85 | 655.16 | $1,452.55 | $168.88 |
| 2029 | $2.394 | 33.78 | 688.94 | $1,649.64 | $197.09 |
| 2030 | $2.586 | 38.36 | 727.30 | $1,880.82 | $231.18 |
| 2031 | $2.793 | 43.74 | 771.04 | $2,153.45 | $272.63 |
| 2032 | $3.016 | 50.08 | 821.12 | $2,476.78 | $323.33 |
| 2033 | $3.258 | 57.60 | 878.72 | $2,862.56 | $385.78 |
| 2034 | $3.518 | 66.57 | 945.29 | $3,325.78 | $463.22 |
| 2035 | $3.800 | 77.34 | 1022.64 | $3,885.73 | $559.95 |
| 2036 | $4.104 | 90.37 | 1113.00 | $4,567.42 | $681.69 |
| 2037 | $4.432 | 106.22 | 1219.22 | $5,403.57 | $836.15 |
| 2038 | $4.787 | 125.66 | 1344.89 | $6,437.35 | $1,033.78 |
Manulife is giving a $0.44 quarterly dividend in 2025 and has already paid for the first quarter. You will get three more quarters of dividends this year, which comes to $766.92 for 581 shares. The $766.92 dividend can buy you 17.84 DRIP shares at $43 per share. The next dividend amount will be calculated on 598.84 shares, thereby growing the dividend amount. You are enjoying growth at two levels: share count and dividend per share.
The more time you spend in the market, the faster your dividend grows. From the eleventh year onwards – 2036, the annual dividend grows by $682 and then $836.
What risk does this investment hold?
The higher returns come at a risk. Manulife is in the business of risk and return, selling insurance and reinsurance in the United States, Canada, and Asia. It also provides Global Wealth and Asset Management services, which earn investment returns.
The company earns premiums for providing insurance coverage for different types of risk. Every new insurance policy has a contractual service margin (CSM), which is the unearned revenue of the insurer. If the risk is realized and a claim is made, the CSM is reduced; and if no claim is made, the company realizes the full CSM. Manulife sets aside some amount in expected credit loss (ECL) whenever risks of a claim increase, which reduces its net income.
The insurer is currently in a cyclical upturn as economic uncertainty has increased the demand for insurance. It is earning a significant premium and paying 35–45% of its free cash flow as dividends. If the claims ratio increases or investment returns decrease, its earnings will fall and so will the dividend growth capacity.
However, the company has built a resilient model, which will help it sustain its current dividend amount.
