What is a Dividend?

= $0 Return = Gain or Loss / Beginning Market Value Return =$0 / $100 = 0% Ah-ha! So it’s a 0% return as well. So you can see by these 3 examples that if you reinvest the dividends, you do end up with more money in investments – you have$100 instead of \$98.  However, your return is the same under both scenarios.  We dispel the myth that your returns are higher when you reinvest dividends.

Two notes:

1. We are discussing time-weighted returns here, the internal rate of return would be somewhat different, but time weighted return is the most common with the disclosure “returns reflect reinvestment of dividends” which does not make sense.
2. Returns with dividends are higher than returns without dividends (called “price only” returns).  But that is different than saying returns are higher when you reinvest dividends versus when you don’t, which is not true.
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