Thursday, April 23, 2009

Dividends – Parts 2 - Reinvestment

You will make a strategic choice from three options when dividends are paid on your stock.

Option (1) – take the cash and spend it. If you are retired this may be the best choice. It provides income and leaves your principle invested and growing.

Option (2) – deposit the cash in an investment account and let it accumulate. This allows you to invest the money where you think best when sufficient funds have built up.

Option (3) – automatically reinvest the dividend in the same company’s stock. This can be set up through most brokerage accounts or through a DRIP account (more on DRIP accounts later). Automatic reinvestment is less flexible but it is very low maintenance and has the advantage of providing the full benefits of compounding.

Shares and fractions of shares are purchased with little or no commissions or fees. In subsequent quarters these shares yield more dividends that are also reinvested. All while the stock continues to appreciate in the market’s normal up & down manner.

I use a combination of Options (2) & (3). I have DRIP accounts set up for two stocks and I bundle dividends with new cash to invest in my current best ideas.

Links to the Dividend Special Report
Part 1 - Introduction
Part 2 - Reinvestment
Part 3 - Dividend Growth
Part 4 - Dividend Yield vs Dividend Growth
Part 5 - DRIP Accounts

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