On May 21, I posted some important information about stock dividends (which includes dividends paid by ETFs). But there is an important point to be made for investing in dividend paying stocks. It's the same as compound interest on savings. Phil Town calls it Payback Time . The basic premise is to re-invest dividend payments from stocks to reduce the overall cost of ownership. If you hold the stock long enough (not always possible), eventually your cost is zero. Let's look at a real example using AT&T (T). The information here is based on actual data from Yahoo's finance website. We purchase 500 shares on June 5, 2014 for $35.02 a share. This is an investment of $17,510, which is also called our basis. We also make sure to instruct our broker to reinvest all dividends by buying extra shares, which will be purchased at the market rate, usually the day after the dividend is paid. We are actually going to buy extra shares without using our own money. We will use t