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Dividend Reinvestment
Definition
Using dividend payments to automatically purchase additional shares of the same investment.
Explanation
Dividend reinvestment (DRIP) is a powerful compounding strategy. Instead of taking cash, dividends buy more shares. Those new shares generate their own dividends, creating exponential growth. Most brokerages offer this free.
Reinvested dividends have historically accounted for about 40% of the S&P 500's total return over the last century.
Example
$10,000 in a stock with 6% growth + 3% dividend yield. Without reinvesting: $32,071 after 20 years. With reinvesting: $56,044 — nearly $24,000 more.