How Much 'Extra' Return Are You Getting If You Reinvest Dividends?

Data sources can be misleading about your returns. Most sources ignore dividends and only show price returns. When a major news network reports what the market did that day, they speak only of price returns. "The Dow went up 118.86 today." The charts on CNBC, Morningstar, Seeking Alpha, Yahoo - they are all price charts. Price-only charts. Your brokerage's displays are probably price charts. Mine are at E-Trade. What if you reinvest dividends? The return picture changes dramatically if dividends are reinvested.

A Berkshire shareholder receives the benefit of this compounding via BRK's share price, which is an interpretation by the market of BRK's business value. As with all stocks, BRK's price goes up and down. An individual investor can set up a Grahamian "investment operation" that follows the same general model. That is what I try to do as a dividend growth investor. I collect cash from my assets, then I redeploy that cash to collect even more next year. That is compounding.

Source: Seeking Alpha

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