March 27, 2015

Reinvesting Dividends vs. Not Reinvesting Dividends: A 50-Year Case Study of Coca-Cola Stock

Last week, I posted on a 50-year investment history of shares of The Coca-Cola Company.  As I was publishing this month’s content, I began writing a piece that I called The Dividend Dilemma that focused on whether you should reinvest your dividends or not.  Around the same time, one of the readers, Matt Nix, asked about the difference dividend reinvestment would have made in the case of the Coke case study.  

My curiosity piqued, I spent my afternoon in my home study with a batch of fresh spreadsheets, half a century of publicly available Coca-Cola dividend and stock split information, and a calculator.  

The results were interesting.  I cover them in-depth in the piece over at so I encourage those of you who are interested to read it.  (One side note: I re-ran the numbers through today’s closing price so the ending figures are slightly different from the previous post for the non-reinvestment selection because Coke shares have appreciated around $4 in the past two weeks.  Also, the figures might be off by roughly 3% or less because the publicly available data contained an anomaly in the 1970 period to which I have not found a fully satisfactory explanation, leading to a possible understatement of dividend income in that year.) 

Coca-Cola Stock with Dividends Reinvested Over Past 50 Years

Click to Enlarge for Breakdown of Coca-Cola with Dividends Reinvested and without Dividends Reinvested from mid-1962 through mid-2012, a period covering 50 years, or an investment lifetime.  This is the 95% complete rough draft image; a couple of the individual year-end data figures are off due to a formula copy error but the ending figures should be correct because I recalculated them several times by hand instead of relying on the spreadsheet formula.

Dividend Reinvestment vs. Spending Your Dividends

The short version, for the casual readers of the site: Imagine you had two identical investors, James and Thomas, both of whom bought $10,000 worth of Coca-Cola stock in mid-June 1962.  James reinvests his dividends, Thomas does not.

  • Thomas without Dividend Reinvestment.  Thomas bought $10,000 worth of Coca-Cola in mid-June 1962.  This resulted in 131 shares in his account.  He ignored the stock.  Over the past 50 years, he collected $136,270 in cash.  That is more impressive than it appears because $1 in dividend income back in the 1960’s had significantly more purchasing power.  Adjusting for inflation, the current dividend equivalent of the cash income he was paid is $193,350.  On top of this, his 131 shares of Coca-Cola have grown into 6,288 shares of Coca-Cola with a market value of $503,103.  
  • James with Dividend Reinvestment.  James bought $10,000 worth of Coca-Cola in mid-June 1962.  This resulted in 131 shares in his account.  He reinvested all of his dividends over the years.  He never added to nor took away from the position over than those reinvested dividends.  Today, James is sitting on 21,858 shares of Coke stock with a market value of nearly $1,750,000.  His annual cash dividend income is nearly $22,000.

Real Purchasing Power Gains After Inflation for Both Investors

Breaking this down and looking at it from an inflation perspective so we can measure real purchasing power changes.  Investing $10,000 in 1962 is the same as investing $76,000 in 2012.  Looking the scenarios that way, we realize that:

  • Thomas received the inflation-adjusted equivalent of $193,350 in cash dividends along the way and is now sitting on $503,103 worth of the stock.  Over 50 years, he turned his $76,000 purchasing power equivalent into $696,453.  This is a real purchasing power gain of 941%.  That means he turned every $1.00 he invested into $9.41 in purchasing power.  Not bad.  He also got to enjoy his money along the journey.
  • James is now sitting on $1,750,000.  Over 50 years, he turned his $76,000 purchasing power equivalent into $1,750,000.  That is a real purchasing power increase of more than 2,300%.  That means he turned every $1.00 he invested into $23.00 in real purchasing power.  The down side is, he didn’t get to spend any of his capital along the way.  He has to do it now, in his older age, or his heirs will do it when he dies.

A Few Academic Considerations

For now, we are ignoring the effects of taxes, which would be considerable.  That is tolerable because, going forward, an investor could simply open a Roth IRA and take advantage of many of the free dividend reinvestment programs offered by the big discount brokers, most of whom do not charge a fee for the service.  

A Single Share of Coca-Cola Bought for $40 in the 1919 IPO With Dividends Reinvested Is Now Worth $9,800,000 vs $341,545 Without Dividends Reinvested

Going back even further, Coca-Cola has an amazing chart that shows the value of one (yes, “1”) share of stock of the Coca-Cola Company bought in the 1919 IPO for $40, comparing dividend reinvestment with dividends not being reinvested:


  • Jacek Janiszewski

    This may be irrelevant to the actual topic but as a geek I enjoy the
    typography and design of the charts. Goes to show economics people don’t
    necessarily have to be design-sense-challenged.

    • Joshua Kennon

      Thanks =)

  • art school dropout

    It’s interesting to note that for the first twenty-something odd years, the stock did not perform very much. ( Early 60s – 80s ). Granted, you’re paying little in relative terms for the stock, but that is still a long time to sit and wait.

    • Joshua Kennon

      Aaron and I were discussing that same phenomenon this afternoon. The culprit was the catastrophic stock market collapse of the 1973-1974 period. People forget how horrible it was, but it was certainly the worst thing since the depths of 1933, and was as painful, if not more so, than the 2008-2009 collapse. Some of the best value investors in the world were down 50% to 75% on paper.

      For me, the only rational defense for the typical person, provided they are beginning young enough to have the advantage of at least a 40 to 50 year investment lifetime, would be the policy of acquiring high quality assets, including stocks, each year as funds become available. Then, have the dividends, interest, rents, and other cash flows poured into an account that get redeployed at the end of the year to other intelligent and rational assets. Even in the event of the dismal performance Coke experienced for the first 20 years, it wouldn’t particularly matter much. It would be akin to a single horse in a stable full of stallions and mares. It only takes one or two to win the proverbial Kentucky Derby.

      You often don’t know which particular position will win in a given period of time. Looking back at my personal family holdings, I never would have guessed the single stock that outperformed all the others, up almost 50% in less than 12 months. It was reasonably valued last year but its performance has been spectacular. All you can do is acquire value. You cannot time or predict when other people will recognize that value. In the meantime, the dividends pay you to wait.

      • FratMan

        Joshua, I’m waiting for your post on how your whimsicial Disney stock memento purchase has been the trouncing success of the portfolio ;)

  • Anon

    Scottrade is offering a new, flexible dividend reinvestment program that I think meshes with your capital deployment philosophy, but for free.


    With FRIP™, dividends accumulate into a pool of funds. Those funds
    are then used to automatically purchase most stocks or exchange-traded
    funds of your choosing.

    If you enroll in FRIP™, you will have the following flexible choices to make:

    Choose which dividend-paying securities you want to include in the
    program. After enrolling, any dividend-paying equity is included
    automatically after you enroll.

    Select up to five eligible stocks or exchange-traded funds that you want to buy using your FRIP pool.

    Select the date you want orders placed.

    Determine the frequency of your trading, either monthly or quarterly.

    You can change your FRIP options at any time.