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1 Simple Trick to Help Boost Your Investment Returns

The late American tycoon John D. Rockefeller once said, “Do you know the one thing that gives me pleasure? It’s to see my dividends coming in.” That thing which gave Rockefeller so much pleasure – dividends – is actually that simple trick which can really help boost your investment returns.

Why do I say so? Consider the experience that investors in Singapore Press Holdings Limited (SGX: T39) would have had in the decade between 28 October 2004 and 28 October 2014. 10 years ago, the newspaper publisher was trading at S$4.72 a share; yesterday, the company’s shares were some 10.8% lower at S$4.21.

That’s actually a horrible return, especially when considering that the broader market, as represented by the Straits Times Index (SGX: ^STI), had gained some 61.5% over the same period.

But, what’s interesting about Singapore Press Holding’s situation is how much the investing experience would have changed if investors had reinvested the company’s dividends throughout those 10 years. See below:

SPH share price growth

Source: S&P Capital IQ

As it turns out, Singapore Press Holdings’ dividend-adjusted share price growth has significantly outpaced its capital gains (losses?). All told, when reinvested dividends are accounted for, Singapore Press Holdings had actually gained 74% over the decade ended 28 October 2014. No wonder Rockefeller was so in love with his dividends!

Singapore Press Holdings is also hardly the only one that has benefitted from the effects of dividend-reinvestment. Investors in other blue chips like Singapore Telecommunications Limited (SGX: Z74), Keppel Corporation Limited (SGX: BN4), and Sembcorp Marine Ltd (SGX: S51), amongst others, would also have seen their returns jump if dividends had been reinvested and accounted for.

Share Capital gains* Total returns (with reinvested dividends)*
SingTel 55% 151%
Keppel Corporation 150% 308%
Sembcorp Marine 372% 614%
*Figures cover the period between 28 October 2004 and 28 October 2014

Source: S&P Capital IQ

Sharp Foolish readers might turnaround and comment that it would have been tough for investors in the aforementioned companies to reinvest any dividends given Singapore’s current trading rules of having 1,000 unit board lot sizes (investors can only trade in lots of 1,000 shares each here). This makes reinvesting dividends nigh impossible to do (as the money received from each dividend payout would not be sufficient to purchase shares) unless the investor has a huge stake in the company.

I concede – those dividend-adjusted returns above have been largely theoretical for the average individual investor.

But here’s the thing: The 1,000 board lot size is set to be reduced to 100 come 19 January 2015. When that happens, it’s going to make it a whole lot easier for investors to reinvest their dividends.

Knowing what has happened in history gives investors a framework to think about the future. With dividends, reinvesting them has been shown to be able to make a huge difference in returns. When the time eventually does come when we can reinvest dividends with greater ease, such knowledge would be extremely useful in helping us improve our investing results.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.