WISE Certification Practice Test 2025 – All-in-One Guide to Master Your Certification!

Question: 1 / 400

If a person chooses to reinvest dividends rather than receive them in cash, what does this commonly lead to?

Less share ownership

More share ownership

Choosing to reinvest dividends rather than receiving them in cash typically leads to more share ownership. This is because, through a dividend reinvestment plan (DRIP), the dividends that would have been paid out in cash are instead used to purchase additional shares of the stock. Over time, this process compounds the investment, as the investor accumulates more shares without needing to invest additional cash.

This strategy is particularly powerful in a growing company or investment, as it leverages the power of compounding, allowing the ownership stake in the company to grow at a potentially faster rate than if dividends were taken as cash. Increased share ownership can result in a larger future cash flow when those shares pay dividends later on, further enhancing the investment's value.

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A decrease in overall investment

Immediate cash flow

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