Individual investors often are advised to invest in growth stocks and comparable investments in their younger years for wealth building and then adjust the portfolio in one’s later years more towards income based investments. As a general rule of thumb, history shows that the odds are in favor of this approach delivering positive results. Unfortunately, this approach does not accommodate those who lack the risk tolerance for market turbulence extremes or those who took big losses during the 2008 subprime mortgage banking collapse.
Dividend Reinvestment Plans (DRIPs) are a convenient way to compound funds to build wealth in a portfolio. If the person doesn’t need the income for monthly expenses, reinvestment of monthly dividends can even replace the need for adding funds from savings to utilize compounding. Although dividend stocks are more often the choice of income investors, one can use dividends as a less volatile means to build wealth than buying and holding onto a “Magnificent 7” stock, for example. As long as one has the ability to pay the income tax on the dividends being reinvested, a DRIP agreement can waive fees and put dollar cost averaging on autopilot.
Closed End Funds (CEFs) offer additional diversification risk by design, since their portfolios are a mix of various securities. A sizable percentage of CEFs pay dividends with quite a few offering payouts on a monthly basis. Below are two sample monthly dividend CEFs. The straight dividends compared to the advantages of compounding on a monthly, or even an annual basis can demonstrate a surprising difference in returns. Based on a 10-year period, a $10,000 amount will be referenced for ease of calculation, with yield predicated on market quotes at the time of this writing.
Calamos Dynamic Convertible and Income Fund
Calamos Dynamic Convertible and Income Fund (NASDAQ: CCD)
Yield: 11.4%
Shares for $10,000: 487.80
Annual Dividend Amount: $1,140.00
Monthly Dividend Amount: $$95.00
Convertible bonds are fixed-income instruments that pay their coupon yield but have a prearranged convertibility option to common stock at the investor’s discretion. This gives the investor flexibility to take advantage of market conditions that may signal an upside swing in the common stock market price, which might prove more lucrative than the coupon income.
Naperville, IL based Calamos Dynamic Convertible and Income Fund is a closed-end mutual fund that invests in publicly traded convertible securities, as well as corporate bonds, equity linked notes, and floating rate bonds. The fund also uses option trading to boost returns.
The fund’s portfolio of $807 million AUM as of the end of April is somewhat skewed towards the Information Technology sector, which is 34.4%. Consumer Discretionary at 12.2% and Healthcare at 10.1% round out the top three. 85.5% of all investments in the portfolio are convertible securities. Corporates comprise the next largest asset class, with 10.04%.
The top three largest holdings are in the following companies:
- Boeing – 2.7% in a mix of DECS (Debt Exchangeable for Common Stock) convertible debentures, ACES (Automatically Convertible Enhanced Securities), and PRIDES (Preferred Redeemable Increased Dividend Equity Securities).
- Snowflake, Inc. – 2.3% convertible bonds
- Microstrategy, Inc. – 2.1% convertible bonds
As the calculations show, an annual DRIP generates almost $8,000 more return in interest. If the DRIP is performed monthly, it generates an additional $1,656.95 during the 10-year period, a nearly 45% increase over cash dividends alone.
| Compounding Period | Total Amount | Interest |
| Zero – Dividends as Cash | $21,400.00 | $11,400.00 |
| Annual | $29,381.38 | $19,381.38 |
| Quarterly | $30,713.36 | $20,713.36 |
| Monthly | $31,038.33 | $21,038.33 |
Nuveen Real Asset Income and Growth Fund
Nuveen Real Asset Income and Growth Fund (NYSE: JRI)
Yield: 12.20%
Shares for $10,000: 758
Annual Dividend Amount: $1,220.00
Monthly Dividend Amount: $101.66
Unlike the above-mentioned fixed-income based mutual funds, Chicago headquartered Nuveen Real Asset Income and Growth Fund invests the majority of its portfolio in global public equities and preferred stocks with a focus on the real estate, REIT and infrastructure sectors. The fund’s policies allow up to 40% maximum investment in debt securities, but no more than 10% in CCC+ or lower. It also allows for portfolio managers to hold as much as 75% in non-US securities.
As of July 2025, the largest sector portfolio allocation was:
- Real Estate Common Stock: 26.7%
- Infrastructure Common Stocks: 21.2%
- Infrastructure preferred stock: 19.2%
The three largest positions (common stock) being held are:
- Energy Transfer, LP – 1.50%
- Gaming and Leisure Properties, Inc. – 1.40%
- Evergy, Inc. – 1.30%
As the chart shows, an annual DRIP program increases returns by $9,285.04. If reinvestment takes place on a quarterly basis, it equates to an additional $2,025.79.
| Compounding Period | Total Amount | Interest |
| Zero – Dividends as Cash | $22,200.00 | $12,220.00 |
| Annual | $31,505.04 | $21,505.04 |
| Quarterly | $33,130.96 | $23,130.96 |
| Monthly | $33,530.83 | $23,530.83 |
Dividend compounding is a considerably steady means to build wealth. In addition to the reduced sleepless nights, one has the flexibility to live off the income in the event of a job layoff or emergency medical situation, an option not available in a pure growth stock scenario.
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