Reinvest Dividends or Take the Cash?
Takeaways:
- Total return beats price return by factoring in dividends, which can meaningfully boost long-term gains.
- S&P 500 vs. NASDAQ: Over the past 5 years (up to August 2025), dividends helped the S&P 500 slightly outperform the NASDAQ in total return, despite lagging in price return.
- Dividend reinvestment often works better for long time horizons, especially during market downturns when you can buy more shares at lower prices.
- Cash dividends may be better for those needing income, but reinvestment can compound wealth over an investing lifetime.
Reinvest Dividends or Take the Cash – Links
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Link to DataTrek Research: https://datatrekresearch.com/
Reinvest Dividends or Take the Cash – Transcript
Should You Reinvest Dividends or Take the Cash?
Two different types of returns are often cited when talking about investment returns.
There’s “price return,” which is pretty self-explanatory. It’s just the price action.
So a stock, between August 1st and August 31st went from 25 to 30. That’s a 20% price return.
But the other type of return is “total return,” which incorporates dividends paid during that timeframe.
So same example above.
The stock went from 25 to 30, but it paid a 50 cent dividend.
The total return for that investment is 22%, as opposed to 20%.
Data Trek research, who does great market research… they have great market insights, shared recently, the five year “price” and “total” returns for the S&P 500, compared to other investing benchmarks.
So how did it stack up?
Over the last five years, which brings us back to August of 2020. That is just after, this was during the COVID stock market recovery.
So August, 2020 to August, 2025, the on a “price” return, the NASDAQ index has outperformed the S&P 500 index, uh, 93% for the NASDAQ, and 89.4% for the S&P 500.
But on a “total” return basis, the S&P 500 outperformed the Nasdaq 103.9% for the S&P 500 versus 100.2% for the Nasdaq.
You can see it’s about a 10% increase, or a 10 percentage point increase, for each of the investments.
So the “total” return is more than the “price” return.
S&P 500 companies tend to pay more dividends than the growth oriented stocks of the Nasdaq.
So, that’s just a, a “feather in the cap” for dividend reinvestment.
Overall difference is, 3.7%, for the S&P 500, versus the Nasdaq, over five years.
That’s less than a percent per year, you might say. But extrapolate that out over an entire investing lifetime, and it could really make a difference. It’s been said, when we’re talking about investing fees and taxes, that it’s what you get TO KEEP that matters.
It’s what’s left at the end that matters, which is so true.
The same can be said for “total” return versus “price” return.
It’s the entirety of the return that matters, not just what the price is doing.
A couple other quick points.
Should you stop reinvesting dividends when the market goes down?
It depends on your time horizon.
If you’ve got years left to go? I say no, you shouldn’t (stop).
You’ll be buying more shares of your investments with those reinvested dividends.
If the price goes down, you’ll be buying more shares along the way. Which should help your performance over the long run.
We did a recent video on that, so go over to that and, and check it out if you want to learn more.
What about investing more as the market goes down — or continuing to invest, as the market goes down?
When should you NOT reinvest dividends?
You can make the case that if you’re relying on your investments for income, you should just receive the dividends in cash and pay them out of your account.
But, you’ll need to coordinate that on a monthly basis.
If you want to just hold the cash in your account, instead of paying it.
Paying it out could tamp down the volatility. And during turbulent times in the market, which definitely has its benefits there.
But you know, if you have dividend reinvestment on as part of a diversified portfolio that matches your risk tolerance; and you have money for expenses and short-term instruments that aren’t being swung around in the market — then you can probably leave dividend reinvestment on.
It’ll help your long-term returns. But, each case is different with that, like a lot of things.
Dividend reinvestment is a small tweak.
It’s literally, often times it’s just a button on your account homepage, that you can click.
Or not click, if you want to put dividend reinvestment on.
So it’s a small tweak that you can make to your investments that can pay large dividends over time.
See what I did there?
You’re literally getting dividends.
Thanks for watching “Should You Reinvest Dividends or Take the Cash?”
