The S&P 500 Rose 30-Fold Since 1988. Reinvested Dividends Made It 67-Fold.

A $10,000 stake in the S&P 500 (SNPINDEX:^GSPC) at the close on Jan. 4, 1988, was worth around $300,000 at the close on Monday, Oct. 26. That's a 30-fold gain, or about 9.2% a year, from the index's price alone.

But price was just part of what the index paid its owners. With every dividend reinvested, the same $10,000 rose about 67-fold, to roughly $673,000, or about 11.5% a year.

That means dividends added a little over 2 percentage points a year. In nearly 39 years, this slim edge more than doubled the final balance.

I picked Jan. 4, 1988, for a simple reason. Yahoo Finance's daily history of the S&P 500 total return index, which assumes every dividend is reinvested, begins then.

That was around 11 weeks after the Black Monday crash on Oct. 19, 1987, and the index started the period about 24% under its August 1987 record close. A cheap starting point flatters both results, of course. But it raises them in the same proportion, so the reinvested result would still finish over twice the price-only one.

Image source: Getty Images.

A slow start

For years, reinvesting didn't seem to matter much. At the end of 1998, the price-only $10,000 was worth around $48,000, against about $65,000 with dividends reinvested. A decade later, at the end of 2008, the two sat at about $35,000 and $57,000. After 21 years, reinvesting had added only about $21,000.

Dividends did some of their quietest work in the 2000s. In the 10 years through 2009, a period that covered the dot-com crash and the 2008 financial crisis, the index dropped around 24% on price. With dividends reinvested, the loss was only about 9%.

After all, the payouts kept buying extra shares as prices fell.

Then the gap took off. By the end of 2018, the reinvested stake was worth around $195,000 -- nearly twice the price-only stake's $98,000. By the Oct. 26 close, the difference was around $373,000, and about three-quarters of it built up after 2018.

Dividends weren't unusually big in those years. The gap widened because the extra shares bought in the 1990s and 2000s had more and more time to compound, and every year they rode the index's gains right alongside the original shares.

In other words, over half the $673,000 comes from reinvested dividends.

What if you took the cash?

An investor who took the dividends as cash didn't come away empty-handed. By my math, the price-only stake paid about $49,000 in dividends over nearly 39 years, with the yearly check growing from about $378 in 1988 to around $3,100 in 2025.

Add that cash to the $300,000, and this investor wound up with about $349,000 -- a bit more than half what the reinvesting investor had. And anyone who spent those checks along the way would have even less.

True, reinvesting doesn't avoid taxes. In a taxable account, the IRS says dividends used to buy more shares still need to be reported as income, so the tax bill comes either way. And the total return index carries no fund fees, so a real index fund would have lagged it a little.

But neither one gets close to erasing a gap this large.

Reinvesting still makes sense today

The next 39 years likely won't be like the last 39, though. By my math using the two indexes, dividends added around 4 percentage points to the S&P 500's return for 1988. In the past 12 months, they added only about 1.3 points.

The payouts didn't drop. By the same math, the yearly dividend from the price-only stake grew around eightfold from 1988 to 2025. But the stake's value grew more than 20-fold in that stretch, so the yield fell because prices ran well ahead of payouts. Measured against its dividends, the index's valuation is up around threefold since 1988.

At little more than 1 point a year, the gap between reinvesting and not could build more slowly than it did after 1988.

Does this make reinvesting less worth it for index fund owners? Probably not. For money that doesn't need to pay bills, I think it's still the better move. And most mutual funds let shareholders set it up automatically, which makes it an easy habit for anybody who plans to buy and hold for decades.

The 1990s dividends that looked too small to matter wound up doing much of the work three decades later. Today's lower-yielding dividends can do that, but a lot of the payoff might not show up for 20 years or more.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.