So my dear Grandmama passed away last year, leaving behind a sizable inheritance, one large enough to make me consider bumping off the parental units. I restrained myself, but got a look at how Granny accumulated all that wealth. The resulting surprise was the equivalent of having my pants yanked down to my ankles in front of the entire elementary school.

The reason is that I've always scoffed at dividends under 8%. What the heck would a 3% dividend do for me on a $10,000 investment?  Only $300? Golly gee. Big deal.

Then I got a look at how some of Grandmama's reinvested dividend investments fared since her initial purchases back in 1970.

Whoosh! went my pants.

Her portfolio was not so good on the one hand because some positions were gigantic as a percentage, the portfolio never having been rebalanced. On the other hand, the reason the positions were so large was because of reinvested dividends.  Here's a chart of the returns, and what they would have approximately been without reinvested dividends.

Stock

Date Bought

Purchase Price*

Recent Price

Return w/Dividends Reinvested

Return w/o Dividends Reinvested

IBM (NYSE: IBM)

9/20/74

 $4.08

 $124.73

2,957%

582%

Procter & Gamble (NYSE: PG)

10/22/74

 $1.00

 $60.03

5,903%

2,208%

Johnson & Johnson (NYSE: JNJ)

10/22/74

 $0.91

 $58.87

6,369%

3,084%

Coca-Cola (NYSE: KO)

10/14/74

 $0.46

 $55.60

11,987%

4,348%

Wal-Mart (NYSE: WMT)

9/21/87

 $3.58

 $51.14

1,328%

1,165%

Source: Yahoo! Finance. *Adjusted for splits and dividends.

Pretty astonishing, no? The power of compounding, which I actually know all about, is so patently obvious that I feel like a chump for not paying attention to dividends when I invest. I always saw the dividend as a nice little cash payment that never really amounted to much, and just let it drop into my cash account. I also hated the idea of having fractional shares.  

But now, I am following the lead of Grandmama, and telling my brokerage to reinvest all dividends from now on. I'm also looking closely at the five durable companies in the table. And, I have pulled my pants back up and secured them tightly with my Granddaddy's leather belt -- a reminder of the value of my elders, who clearly had more wisdom than I did.

Matthew Brown does not shares of any company mentioned, but swears to reinvest his dividends for the rest of his life. Coca-Cola and Wal-Mart Stores are Motley Fool Inside Value picks. Johnson & Johnson, Coca-Cola, and Procter & Gamble are Motley Fool Income Investor choices. The Fool owns shares of and has written covered calls on Procter & Gamble. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Coca-Cola and Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.