It is well-documented that a significant portion of the historical equity returns are a result of reinvested dividends. In Triumph of the Optimists: 101 Years of Global Investment Returns (2002), the authors looked at equity returns from capital gains and dividends from 1900 to 2000. They determined that performance in any given year was driven by capital appreciation, but long-term returns were largely the result of reinvested dividends. Looking at 101 years of data in the U.S. and U.K., they found that a market-oriented portfolio with dividends reinvested would have generated nearly 85 times the wealth of the same portfolio relying solely on capital gains.
When most people hear the phrase dividend reinvestment, they will often associate it with dividend reinvestment plans (DRIPs). Many companies offer DRIPs through their transfer agent. Instead of sending dividend checks to shareholders enrolled in the company's DRIP, the company reinvests those dividends by purchasing additional shares (or fractional shares) in the shareholder's name. Most plans will reinvest a shareholder's dividends without a fee or commission. Some brokerages offer similar plans.
It is important to note that you can reinvest dividends without participating in a formal DRIP plan. Personally I have chosen not to participate in a formal DRIP plan. I prefer the flexibility of determining where my dividends are invested. I add them to my normal monthly investment, thus I do not incur any additional commissions.
Do you reinvest dividends through a formal program, independently or not at all?
Full Disclosure: No position in the aforementioned securities. See a list of all my income holdings here.
- Increasing Dividend Yield Part II: REITs
- 11 Dividend Stocks Providing Positive Feedback
- Are You Patient Enough To Be Wealthy? These 12 Dividend Stocks Will Help You Wait
- 10 Dividend Stocks For Healthy and Wealthy Retirement
- 15 Dividend Stocks With A 15% Yield In 15 Years
Popular Posts - Last 7 days
Long considered the domain of “ widows and orphans ”, utilities have developed a somewhat stodgy reputation. Why are utilities considered g...
Linked here is a detailed quantitative analysis of Kimberly-Clark Co. (KMB). Below are some highlights from the above linked analysis: Co...
Each Sunday I highlight any notable articles that I came across over the past week. Though I may not always agree with each of the articles ...
Linked here is a detailed quantitative analysis of CVS Health Corporation (CVS). Below are some highlights from the above linked analysis: ...
Most casual income investors focus on current yield, which is important. However, if your objective as an income investor is to build a port...
Once again it is time for a goals/progress update. I am pleased to report that annualized dividend income increased in September, extending ...
Presented below are my dividend stock and ETF/CEF holdings. This is not a recommendation to buy these securities. I have classified some of...
Monday, October 31, 2011 will mark my fourth full year of writing as Dividends4Life . It is hard to believe another year has passed. Like th...
The difference between an income investor and a dividend growth investor is time and the understanding of how compound growth works. If you...
Like many that came before me, I am on a journey to construct a portfolio that will provide me... Dividends 4 Life