If you had invested £5k in Barclays in 2002 and then reinvested dividends into new Barclays shares then the value of your investment is shown below.
I picked Barclays because they are a classic long term hold share and there is nothing particularly nasty about their history.
I have picked the start of 2002 as the starting date as the share price was not abnormally high or low and assumed an investment of £5K.
Since then you would have received £2,864 of dividends giving you a total investment of £7,862 and if it became necessary to sell today (Feb 2018) at 160p then you would receive £2,607 a loss of over £5,255.
It is unfair to just pick one date, so picking the best value over the last 6 years gives a 337p share price and a value of £5,200, still almost a 33% loss but at least the losses are only the dividends.
To get back to a break even point we need a share price of 501p, this is not unachievable, it was there during the peak of over inflated bank prices, but at the moment this would be a P/E ratio of something like 40:1
I do believe that the current share price is slightly low and looking through the numbers you can find start and end points (especially if you go forward in time) with smaller losses or some profits.
Given that most people start serious investing in their late 30s, 40 or early 50s this would be worrying to anyone who has gone for long term holdings and dividend reinvestment.
For the big funds this is less of a problem as they are able to ignore the bad years, but as a personal investor if you had to sell at any time over the last 6 years it would have been a disaster.
The big fund can also buy at reduced prices in the bad, "averaging down" so that in 40 years time they can be laughing.
It is easy to deny that I have shown anything as you can always say that the starting point is biased to prove my point and that I have picked a share for the same reason.
But if you are going to say that about Barclays over 16 years.....?
What we seem to see is that the assumed safety net of the new shares bought with dividends protecting against share price fluctuation has not been realised, instead reinvesting the dividends into more shares has increased the losses as those shares were bought at very high prices.
You could of course have taken the dividends as cash and if had done this then you would be in a slight profit.
Share Dividend Num New
Pot Pot Qty of Price Dividend Amount Per Dividend Shares
Cost Value Profit Shares Pence Date Share(p) Amount(p) Bought
£4,998 £4,998 899 556
£4,998 £3,811 -£1,187 899 424 Aug-02 6.35 5708 13
£5,055 £3,184 -£1,871 912 349 Feb-03 12 10949 31
£5,165 £4,322 -£842 944 458 Aug-03 7.05 6653 15
£5,231 £4,629 -£603 958 483 Feb-04 13.45 12889 27
£5,360 £5,112 -£248 985 519 Aug-04 8.25 8126 16
£5,441 £6,064 £623 1001 606 Feb-05 15.75 15760 26
£5,599 £6,037 £438 1027 588 Aug-05 9.2 9445 16
£5,693 £6,402 £709 1043 614 Mar-06 17.4 18143 30
£5,875 £6,809 £934 1072 635 Aug-06 10.5 11259 18
£5,987 £8,611 £2,623 1090 790 Mar-07 20.5 22344 28
£6,211 £6,833 £622 1118 611 Aug-07 11.5 12860 21
£6,339 £5,571 -£768 1139 489 Mar-08 22.5 25634 52
£6,596 £4,362 -£2,234 1192 366 Aug-08 11.5 13705 37
£6,733 £3,933 -£2,799 1229 320 Nov-09 1 1229 4
£6,745 £3,317 -£3,428 1233 269 Feb-10 1.5 1850 7
£6,764 £4,191 -£2,573 1240 338 May-10 1 1240 4
£6,776 £3,668 -£3,107 1244 295 Aug-10 1 1244 4
£6,788 £3,419 -£3,369 1248 274 Nov-10 1 1248 5
£6,801 £3,895 -£2,906 1252 311 Feb-11 2.5 3131 10
£6,832 £3,800 -£3,032 1262 301 May-11 1 1262 4
£6,845 £2,824 -£4,020 1267 223 Aug-11 1 1267 6
£6,857 £2,112 -£4,745 1272 166 Nov-11 1 1272 8
£6,870 £3,277 -£3,594 1280 256 Feb-12 3 3840 15
£6,909 £2,771 -£4,137 1295 214 May-12 1 1295 6
£6,922 £2,134 -£4,788 1301 164 Aug-12 1 1301 8
£6,935 £3,010 -£3,924 1309 230 Nov-12 1 1309 6
£6,948 £3,944 -£3,004 1315 300 Feb-13 3.5 4601 15
£6,994 £4,176 -£2,818 1330 314 May-13 1 1330 4
£7,007 £4,269 -£2,738 1334 320 Aug-13 1 1334 4
£7,020 £3,707 -£3,313 1338 277 Nov-13 1 1338 5
£7,034 £3,640 -£3,394 1343 271 Feb-14 3.5 4701 17
£7,081 £3,374 -£3,707 1361 248 May-14 1 1361 5
£7,094 £2,964 -£4,130 1366 217 Aug-14 1 1366 6
£7,108 £3,294 -£3,814 1372 240 Nov-14 1 1372 6
£7,122 £3,597 -£3,525 1378 261 Mar-15 3.5 4823 18
£7,170 £3,589 -£3,581 1397 257 May-15 1 1397 5
£7,184 £3,505 -£3,679 1402 250 Aug-15 1 1402 6
£7,198 £3,617 -£3,580 1408 257 Nov-15 1 1408 5
£7,212 £2,388 -£4,824 1413 169 Mar-16 3.5 4946 29
£7,261 £2,351 -£4,910 1442 163 Aug-16 1 1442 9
£7,276 £2,728 -£4,548 1451 188 Mar-17 2 2902 15
£7,305 £2,757 -£4,548 1467 188 Aug-17 1 1467 8
£7,320 £3,022 -£4,297 1474 205 Mar-18 2 2949 14
£7,349 £2,561 -£4,788 1489 172 Aug-18 2.5 3722 22
£7,386 £2,447 -£4,939 1510 162 Mar-19 4 6042 37
£7,447 £2,368 -£5,079 1548 153 Aug-19 3 4643 30
£7,493 £2,257 -£5,236 1578 143 Mar-20 0 0 0
The chart below shows what would have happened if the dividends were not reinvested as with hindsight this would seem like a good idea.
Hindsight is good, but if investing your dividend elsewhere is a good idea then surely selling the capital and investing that elsewhere would also be a good idea?
In this case we still see a big capital loss from the initial £5k but we also see smaller rises and falls after around 2010 as we are not seeing losses and gains associated with shares bought with the dividend income at the peak of the share price.