Odds Favor Reinvesting Dividends to Build Value

As many of you will know already, I am a firm believer in the power of reinvesting dividends. In fact, it is one of the factors that I am relying on to help me achieve my goal. To that end, this article by Scott Bruns provides a good statistic on the effect of dividend reinvestment:

According to the Ibbotson Associates yearbook on asset returns, capital appreciation contributed much of the 10.4 percent annualized compound rate of return on large common stocks from 1926 through 2004. But nearly half came from dividends and their reinvestment.

Nearly half came from dividends and their reinvestment. Wow. He also goes on to talk about how about how not reinvesting is like betting that the other stock you buy will do better than your dividend paying holding. This may be true, but you never know. This is just further proof (to me) that my strategy is sound and I will continue as I have been.