10 Things Every Dividend Investor Should Know

In this article, we discuss 10 things every dividend investor should know. If you want to read more about dividend investing, go directly to have a look at 25 Things Every Dividend Investor Should Know. 

10. Dividend Reinvestment Plans (DRIPs):

Dividend Reinvestment Plans, or DRIPs, allow investors to automatically reinvest their dividend payments into additional shares of the company’s stock, often at a discounted price. This can help investors build their holdings in a particular company over time, potentially increasing the long-term returns of their investment. Reinvested dividends can play a significant role in investors’ overall returns, particularly over the long term. According to a report by Hartford Funds, reinvested dividends represented 69% of the S&P 500’s total return since 1960.

Forbes cited Shiller’s data and also highlighted that reinvested dividends remained crucial to overall market return in the past. The report mentioned that since 1971, the S&P 500 delivered an annual average return of 7.58%, which grew to 10.51% when dividends were reinvested.

These reports show that reinvesting dividends can help to compound an investor’s returns, as the additional shares purchased with the dividends can generate additional dividends themselves. This can result in a snowball effect, where the total return from the investment gradually increases over time. In the past 20 years that ended October 31, 2022, 39% of the S&P 500’s total returns were derived from the reinvested dividends, as reported by The Vanguard Group.