Dividends & Returns
~3 min read
Dividend Reinvestment
The Power of Reinvesting Dividends
Instead of spending your dividend payments, you can use them to buy more shares. Over time, this creates a compounding effect that dramatically increases your wealth.
How Compounding Works
Imagine you own 100 shares of a stock at KES 50 each (KES 5,000 total) with a 6% dividend yield:
- Year 1: Receive KES 300 in dividends, buy 6 more shares
- Year 2: Now 106 shares earning dividends, receive KES 318
- Year 3: Now 112+ shares, and it keeps growing
After 20 years of reinvesting dividends (assuming stable prices and dividends), your 100 shares could become 320+ shares!
DRIP
Some markets offer formal Dividend Reinvestment Plans (DRIPs). On the NSE, you can manually reinvest by using dividend income to place new buy orders.