Most investors know that dividends matter. But what’s less obvious is just how much difference reinvesting them can make over time. Take the SPDR® S&P 500 ETF Trust (SPY). It’s one of the most widely held ETFs in the world, tracking the performance of the S&P 500 Index.

Example: Dividends reinvested vs not reinvested in the SPY

Between April 2015 and April 2025, if an investor simply held the SPY without reinvesting dividends, it returned 10.30% per year – turning $1,000 into $2,660.

With dividends reinvested, the return rose to 12.20% per year – growing that $1,000 to $3,165 (source: Portfolio Visualizer).

Why this matters for income strategies

This shows the power of compounding. Each reinvested dividend bought more shares, which then earned more dividends – creating a snowball effect.

For income-focused investors, it also illustrates a potential trade-off: spending the income may reduce long-term total returns.

The IncomeShares approach

The IncomeShares S&P 500 Options (0DTE) ETP (SPYY) aims to generate monthly income by selling daily put options on the S&P 500 Index or the SPY ETF. That income is not automatically reinvested back into the ETP.

Key takeaways

• Reinvesting dividends may boost long-term returns through compounding.
• Income strategies like SPYY aim to pay out monthly income – and do not automatically reinvest income.
• Income-focused strategies may involve trade-offs between regular payouts and long-term growth.