Dividends count

Equity investors have a choice to make. They can either spend the dividends they earn on current consumption, or they can reinvest their dividends in more stock. This decision doesn't have much of an impact for short time horizons, but as the horizon lengthens, the impact of this choice is increasingly amplified.

In this chart by Catherine Mulbrandon at Visualizing Economics, $100 is invested in the S&P Composite in 1871. In a portfolio without dividend reinvestment, that $100 would have grown to almost $1,600 in inflation-adjusted terms by 2010. With dividend reinvestment, that same $100 would have grown to nearly $95,000.Clearly, dividends count.