It’s not widely known that reinvesting dividends can greatly increase returns on share investment.

Dividends are a welcome addition to investor’s returns on their shares. They represent the portion of profits that companies distribute to shareholders.

Growth in dividends from shares in the UK has outpaced inflation over the last 20 years, according to M&G. Indeed, they have grown by 31 percent over the past three years.

Ben Willis, Head of Research at Whitechurch Securities said, “Volatility in the market can benefit the long-term investor. If you reinvest dividends you get more units for your money, which puts you in a stronger position when markets rebound.”

Reinvesting rising dividends often bring handsome returns. Anyone who invested in, for example, the M&G Extra Income fund 20 years ago will have doubled their capital and would have received total net income payments of 176 percent of their original investment, despite taking the dividends as income. Those who reinvested those same dividends would have seen their investment increase fivefold in the same period.