Alright, so I'm absolutely sure that you've heard of this when looking at stocks, crypto staking and annual percentage rates. Hell, you've even came across it while shopping for a bank. (which I hope you didn't go to Chase!)
Anyways, We're going to be talking about
Blackrock Capital Investment Corp (BKCC) because I so adamantly recommend this stock to beginners.
If you look up a particular stock on RobinHood, look at the statistics section and notice the Div/Yield data.
BKCC Stats
That 11.557 is the dividend payments per year, or annual percentage yield if you will. That means they paid out 11.557% apr last year, and this will give you an idea of what they might pay this year.
When researching stocks it is also very important for you to take note of the next section as well.
The Earnings section.
BKCC EPS
The faint dot is the expected earnings per share and the darker dot is what they actually ended up paying for the last few quarters. The dots for Q1 and Q2 states that they actually paid out $0.16 cents, rather than their projected amounts each quarter. That shows they paid 2.6% for the first two quarters of 2018.
So let's just assume they will continue at 2.6% for each quarter this year.
This would put the Div/Yield for 2018 at 10.4%.
Now, onto the compounding interest portion of this write-up.
Lets just say, for arguments sake that you have $600 in BKCC stocks that you plan on holding for 36 months, and their Div/Yield stay at 10.4% for the entire period.
After the first year, you would have gotten a total of 12.005% apr.
After the second, 25.451666666666668% apr.
The the third, 40.513333333333335% apr.
If the apr was paid out yearly, you would have only gotten 31.2%, but since BKCC pays out quarterly you end up making an extra 9.313%!
This is the same principle for ANY thing that puts compunding interest to use, it's great! It's even a bigger payout if you get interest more frequently like monthly or daily (staking in crypto!).
I hope this did the trick and helped you understand more about the magic of compounding interest!
Leave a comment and let me know if there's anything I could improve or if you still don't quite understand.
Will write up another article applying this data here to banking APR rates.