Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

If You Invest in Dividend Stocks, Do This to Double Your Returns

Companies / Dividends Jun 10, 2019 - 04:53 PM GMT

By: Robert_Ross

Companies If it seems too good to be true, it usually is. But when I say you can juice your investment returns with the click of a button, it’s the plain truth.

I’m talking about reinvesting your dividends.

It may seem like a minor thing. But if you’re not doing it, you’re leaving a lot of money on the table.

In fact, investors who reinvest their dividends can outright double their investment gains.

Let me show you how…


Reinvesting Can Make a Big Difference

Say you own 100 shares of McDonald’s Corp. (MCD).

Every quarter, McDonald’s pays a dividend of $2.00 per share. That translates to $200 in income from your 100 shares.

When this happens, you have two options:
  1. Pocket $200 in cash or
  2. Reinvest $200 directly into McDonald’s shares.

Hint: Choose option two.

Now, McDonald’s trades for around $200/share. So instead of pocketing $200 in cash, you get one extra share.

Then you make the same smart choice the next quarter… and the next. True, it’s only one extra share each quarter. But over time, it makes a huge difference.

That’s because reinvesting your dividends takes advantage of compound interest.

Compound interest is the interest on your initial investment, plus interest on all interest earned. This means your interest—or in this case, your reinvested dividends—earns interest, too.

In other words, those reinvested dividends make your whole investment grow much, much faster.

Reinvesting Your Dividends Can Double Your Returns

Let’s walk through an example.

Say you bought $20,000 worth of McDonald’s stock in 1998. You pocketed the dividends from half of your investment. And you reinvested the dividends from the other half.

By 2019, the first account had grown from $10,000 to $66,598. That’s a total growth of 565%, or 9.9% annually. Not too shabby.

Meanwhile, the second account—the one with the reinvested dividends—had grown from $10,000 to $120,073. That’s a total growth of 1,100%, or 13.0% annually.



Now that’s remarkable.

Your money grew almost twice as much. And the only thing you did differently was reinvest your dividends instead of taking the cash.

Reinvesting your dividends does two things:

  1. You get more stock, which can grow in value over the long run.
  2. For every additional share you own, you get an additional quarterly dividend.

Over time, this leads to a lot more money.

This Isn’t Limited to McDonald’s or US Stocks

Let’s look at a few other examples.

Say, 50 years ago, you invested $1,000 in the S&P 500. So did your neighbor. We’ll call him “Jim.”

Jim didn’t reinvest his dividends. But he still earned an annual return of 2.3%.

But you were smarter. You reinvested your dividends every quarter. So you earned an annual return of 5.3%. That’s more than twice as much as Jim earned.

This strategy is universally effective. You’ll make a lot more by reinvesting your dividends in any market.

Just look at the difference in returns from the world’s eight largest stock markets since 1993:



Source: Schroders

As you can see, reinvesting dividends led to much higher returns across the board.

On average, people who invested in one of the eight major stock markets—without reinvesting their dividends—earned 4.3% annually.

Meanwhile, those who reinvested their dividends earned 7.1% annually.

Shielding Your Portfolio from the Coming Recession

You can’t fight the math.

If you’re not reinvesting your dividends, you’d better have a solid reason why. Otherwise it’s like dropping $100 bills on the sidewalk. Just waste.

I think dividend reinvestment is a good idea for all investors—and at every point in the market cycle. That’s especially true when you own safe and stable stocks.

These stocks tend to do well no matter what’s happening in the economy or the markets. So when the next recession hits—something I expect in the not-so-distant future—and the broader market suffers, you will still own quality businesses that will make it through.

Plus, if you’re reinvesting your dividends, you’re getting more of a good thing, possibly at better prices. And you’re taking advantage of the magic of compound interest.

The Sin Stock Anomaly: Collect Big, Safe Profits with These 3 Hated Stocks

My brand-new special report tells you everything about profiting from “sin stocks” (gambling, tobacco, and alcohol). These stocks are much safer and do twice as well as other stocks simply because most investors try to avoid them. Claim your free copy.

By Robert Ross

© 2019 Copyright Robert Ross. - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in