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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
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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.
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09-01-2019, 12:38 PM
(This post was last modified: 09-01-2019, 12:40 PM by crimsonghost747.)
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.
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09-01-2019, 12:50 PM
(This post was last modified: 09-02-2019, 05:34 AM by fenders53.)
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.
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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.
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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.
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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.