On The Impact Of Dividend Reinvest On Annual Returns

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Reinvesting dividends can boost returns especially in the long-term due to the effect of compounding. One of the simplest and easiest ways for investors to earn higher returns is signing up for automatic dividend reinvestment. Unless one needs the cash for some other investment or one lives off of dividend income, reinvesting dividends is a smart strategy.

The difference in annual returns with reinvesting dividends and excluding dividends varies across major markets as shown in the table below:

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Note: The returns shown above are based on historical data for the past 25 years.

Source: How reinvesting dividends has affected returns over 25 years by David Brett, Schroders

In the US dividend reinvestment increases annual returns by 2.4%. In high dividend yield markets such as the UK, the difference in annual returns is a staggering 3.7%.

 

U.S. Small Bank Failures in the Past 15 Years: Chart

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Small cap banks in the US provide a vital function to the economy. They offer loans to about 44% of farms, 50% of small businesses and 15% of all residential mortgages. When the Dodd-Frank Act was signed into law in 2010 in response to the Global Financial Crisis(GFC) small banks were hurt more than their large and medium peers. In fact, at the height of the crisis in 2009 and 2010, every week some bank collapsed. Usually these negative stories were released on Friday evenings in order to lessen media publicity and attention of the general public.

The chart below shows the yearly failures of US small cap banks in the past 15 years:

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Note: A small cap banks are defined as banks with assets of $10 billion or less.

Source:With Rollback, Dodd-Frank Is Now Officially a Dud, US Funds

Performance of Gold vs. Other Asset Classes: Chart

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Gold is an important asset to own. During times of capital market contractions gold can act as a cushion and help protect a portfolio from severe declines.

The following chart shows the performance of gold over other asset classes in different time periods:

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Source: The Many Uses of Gold, US Funds

Related ETF:

  • SPDR Gold Shares ETF (GLD)

Disclosure: No Positions

The Current vs. Past Bull Market Returns: Chart

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The current bull market started from the trough of the Global Financial Crisis(GFC) in early 2009. Despite being called a bull market it does not feel like a typical bull market. In fact, experts have dubbed this bull as the “most hated bull market in history”.

The chart below compares the returns of the current bull market against past bull markets:

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Source: The Historic Bull Market Faces Off Against Steel Tariffs, US Funds

Dividend Yield: Asia vs. Other markets

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The Dividend Yields offered by Asian firms is higher other equity markets. With a dividend yield higher than 2.5% Asian companies pay the second highest yield after Europe. This rate is also much higher than the dividend yield of American companies.

The chart below shows the comparison of Asian dividend yield to other markets:

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Source: Why consider investing in Asia now? Seven charts that tell the story, Matthew Dobbs, Schroder’s

The author of the above piece noted that reduced debt with rising earnings has the potential for higher payouts. So investors looking for income may want to consider Asian stocks.