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This is how high your additional return is if you reinvest your dividends

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This is how high your additional return is if you reinvest your dividends

If you reinvest your dividends, you can benefit from them, especially in the long term. picture alliance / Daniel Kubirski | Daniel Kubirski

Dividend stocks are stocks in which a portion of the company’s profits are distributed to shareholders at regular intervals.

Investors who own dividend stocks have the option of investing the dividends distributed directly back into stocks. This increases your return and benefits from the so-called compound interest effect.

In a recent analysis, the trading and investment platform Etoro examined how high this additional return would have been in various stock markets.

The options for investing money have constantly expanded in recent years. Interest in stocks has also increased again, not least since the pandemic. When it comes to so-called dividend stocks, there is a strategy from which investors can particularly benefit in the long term.

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What are dividend stocks?

Dividend stocks are special securities in which part of the profits are distributed to shareholders at regular intervals. As an investor, you usually receive the so-called dividend once a year. The amount of the dividend can vary.

Why should you reinvest your dividends?

Of course you can have the dividend paid out and spend the money. However, a good strategy is to reinvest the dividend directly into company shares. With such a reinvestment, your return increases exponentially. The reason for this is the compound interest effect.

Compound interest is such a fascinating process that Albert Einstein reportedly called it the “eighth wonder of the world.” The exponential growth comes about because your previous income will also earn interest in the future through reinvestment. So you constantly increase your invested capital and therefore your return.

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What is the additional return on different stock markets?

In a recent study, the trading and investment platform Etoro analyzed, among other things, the influence of reinvesting dividends. To do this, the platform examined 14 important stock markets and calculated what the additional returns would have been if investors had reinvested their dividends over the past 20 years.

In Germany, for example, an investor could have achieved an additional return of 171 percent if he had reinvested all dividends over the past 20 years. This corresponds to 60 percent of the total return and shows how useful this strategy is, especially for long-term wealth creation. In this context, Ben Laidler, Global Market Strategist at Etoro, also emphasized that time in the market is always more important than the timing of the market.

Here’s how reinvested dividends would have increased your returns on global stock markets:

Stock marketPrice increaseAdditional return when reinvesting dividendsTotal returnDenmark502%318%820%NASDAQ 100610%106%716%Australia163%359%522%S&P 500274%241%515%France143%216%359%Canada161%184%345%Global Index167%157%324%Germany116%171 %287%Japan151%151%272%UK FTSE71%191%262%Switzerland100%141%241%Spain28%155%183%Hong Kong40%139%179%Italy8%34%42%Data from Refinitiv, November 2023.

Disclaimer: Stocks and other investments generally involve risk. A total loss of the capital invested cannot be ruled out. The articles, data and forecasts published are not a solicitation to buy or sell securities or rights. They also do not replace professional advice.

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