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reinvest dividends or not? - stockguru - 09-01-2019
I wanted to get everyone's take on this subject. Right now when a company pays out a dividend I take the cash. I just feel it's better to reinvest those dividends I get paid out at a cheaper price. All companies normally go down the following day of payout. So i just feel I get a better and a higher dividend when I get paid out and then reinvesting them back at a better price.
My question is what do you guys prefer and why? Taking the dividend cash or reinvesting the dividends?
Thanks all
RE: reinvest dividends or not? - ChadR - 09-01-2019
I reinvest the dividend. For a couple of reasons. It's free. I like seeing that I got paid more each quarter from that stock than the previous quarter. Easier to be set to autopilot this way in that I'm always invested in the market. That being said, I do have a few of my stocks that I receive the cash. Ones that are severely overvalued and one account that I kind of use as my emergency fund. That way in case I do need it for an emergency, there is a little bit of cash.
RE: reinvest dividends or not? - crimsonghost747 - 09-01-2019
I'd say the main thing here is costs, and tax being the biggest part of cost.
If you can directly reinvest without having to pay tax in between, then it's of course the smart way to do it if you have any sort of taxes on the cash distribution. You also have to factor in the commissions and the time you are using... I remember someone here recently saying that he has 90 stocks in his portfolio. If they all pay a quarterly dividend then that is 360 dividends per year. If it takes 5min to manually reinvest,(logging into the platform, checking the price etc) that is 30 hours spent.
Personally I take all of it as cash. Doesn't change anything for taxes and my commissions are around $1 anyway. It does stay on my investment account and I do reinvest it manually into whatever I feel like is decently valued at the time.
RE: reinvest dividends or not? - fenders53 - 09-01-2019
I auto re-invested for well over 20 years. It was on autopilot as Chad stated, free and because I paid commissions back then a small purchase made little sense. Now days my dividends are very substantial money and commissions almost free. I consider myself a value investor so I collect them up for a month or so and I decide how the funds are re-invested. My best personal example is I have a lot of utility shares. They pay big Divs and are very clearly overvalued by any rational measure. Knowingly buying shares of stock I am certain are way over historical valuation range would violate my strategy. If I wouldn't make an outright purchase at current price, then why would I DRIP? It's one in the same. You are buying over priced shares with YOUR money.
So my answer is "it depends". If it's big bucks and it actually matters, then maybe put the decision where I think it truly belongs... in your hands. Are you making frequent share purchases each month anyway? If so, that nullifies the commission avoidance excuse. That said, you won't go broke doing it the easy way and just pay too much for new DRP shares. If I owned 50+ stocks and couldn't possibly track them as well as I know I should, well then I might just close my eyes, DRP, and hope Mister Market takes care of it for me in the end.
RE: reinvest dividends or not? - Binary - 09-01-2019
I never reinvest automatically, for the reasons Fenders mentioned. I want to decide myself what I want to reinvest it, don't want to automatically purchase anything that is overvalued.
However, I always reinvest manually, as time in the market is the most important, but sometimes of course I need to wait for some kind of bargain to appear.
RE: reinvest dividends or not? - Ron Ricco - 09-02-2019
All mine come in tax advantaged accounts and are feee for reinvestment. I just let them drip, otherwise I would end up either paying quite a bit in commissions (65+- stocks) or pooling it each month for few purchases.
I see the value in the alternative strategy as well and I will allocate new money that way, but results have worked out pretty well with straight dripping.
RE: reinvest dividends or not? - fenders53 - 09-02-2019
(09-02-2019, 08:21 AM)Ron Ricco Wrote: All mine come in tax advantaged accounts and are feee for reinvestment. I just let them drip, otherwise I would end up either paying quite a bit in commissions (65+- stocks) or pooling it each month for few purchases.
I see the value in the alternative strategy as well and I will allocate new money that way, but results have worked out pretty well with straight dripping.
Commissions or the lack thereof absolutely matter when making this decision. So does your account balance. I dripped XEL, JNJ and PFE for decades and it definitely worked out well. The Div checks were small in the early years. When the total monthly Divs hit $1000 or more, I wanted a vote in where they are re-invested. That's a full stock position or two per year, and I desire to buy low for a better initial yield.
RE: reinvest dividends or not? - MikeWa - 09-02-2019
I also don't reinvest automatically. Dividends go to the cash bucket and I invest when the market price is right. I rarely (never?) invest dividends coming from specific stock into the same stock. Also I pay no commission, so it happened to purchase 1 or 2 shares only when I was short in cash and price was very attractive.
RE: reinvest dividends or not? - Ron Ricco - 09-03-2019
(09-01-2019, 11:50 AM)stockguru Wrote: I wanted to get everyone's take on this subject. Right now when a company pays out a dividend I take the cash. I just feel it's better to reinvest those dividends I get paid out at a cheaper price. All companies normally go down the following day of payout. So i just feel I get a better and a higher dividend when I get paid out and then reinvesting them back at a better price.
My question is what do you guys prefer and why? Taking the dividend cash or reinvesting the dividends?
Thanks all
i know a stock all things being equal, will drop after the Ex dividend date by the amount of the dividend, but I have never seen it correlated to the actual pay date?
RE: reinvest dividends or not? - fenders53 - 09-03-2019
(09-03-2019, 07:29 AM)Ron Ricco Wrote:(09-01-2019, 11:50 AM)stockguru Wrote: I wanted to get everyone's take on this subject. Right now when a company pays out a dividend I take the cash. I just feel it's better to reinvest those dividends I get paid out at a cheaper price. All companies normally go down the following day of payout. So i just feel I get a better and a higher dividend when I get paid out and then reinvesting them back at a better price.
My question is what do you guys prefer and why? Taking the dividend cash or reinvesting the dividends?
Thanks all
i know a stock all things being equal, will drop after the Ex dividend date by the amount of the dividend, but I have never seen it correlated to the actual pay date?
The market maker will adjust the price to account for the EX Div date prior to the open. And the way the market moves some days, you have to be paying attention to even know it happened. If you aren't paying attention you might buy a small dip that really didn't benefit you after losing the dip by a day. Theoretically the difference is stil in their come pay date. The market isn't that efficient. Other factors will guide the SP within days. Options do a better job if calculating for it. When a price looks out of place for a particular expiration date in the future, The Ex-Div date is almost shortly before the expiration.
I have some small stocks that pay a large Dividend of 8%. It's much more noticeable. They will swing like clockwork before the Ex-Div as traders try to swoop in and grab it, then leave if they can. Doesn't sound like a strategy I'd like to try but that's getting off the DRP topic.
RE: reinvest dividends or not? - Kerim - 09-04-2019
When I was just starting out, and my portfolio was relatively small, I just reinvested all dividends back into the companies that paid them. This was simplest, and made sense to me as the best way to build momentum -- that is, to grow the size of the snowball as it started rolling downhill. When you're only collecting a hundred or three dollars in dividends each month, it would take forever to pool them up to make a separate purchase. I understand that this may not be optimal in terms of entry prices at the time each dividend is paid, but it was simple, predictable, and helped the portfolio grow visibly quarter after quarter.
Now that my portfolio is larger, however, and throwing out more than a thousand each month in dividends, I generally pool them up and make separate new purchases with the proceeds. When a company that I like a lot is trading in a good price range, I sometimes just click the "automatic reinvest" box (I was doing that with T for a while a year or two ago, and am doing it with MO and PM now), but mostly I let the dividends pile up and reinvest opportunistically.
I've never been a believer in the "ex-div drop," and have never factored it into my decision-making.
RE: reinvest dividends or not? - NilesMike - 09-10-2019
I always DRIP. When it's at high prices, I consider it adding to my winners.