With dividend reinvestment you can increase the number of shares that you own without spending any new money. Each time a stock pays a dividend, it is converted into shares, the number of which is equal to the dollar amount of the dividend divided by the current stock price.
Over many years reinvested dividends add up to help increase the value of your holdings.
Use the Dividend Reinvestment Calculator to compare the future value of an investment with and without dividend reinvestment. For example, suppose you started with 100 shares of a $150 stock with a $3 annual dividend, a 1% annual dividend growth rate and a 4% annual stock price growth rate. What would the shares be worth with and without dividend reinvestment?
If you held the stock for 20 years, your stock with dividend reinvestment would be worth $44,193.06, a 5.55% annualized return. Without dividend reinvestment your stock would be worth $39,538.61, a 4.97 % annualized return.
