The one thing I’ll note is that some formal DRIP programs have fees associated with the purchase of the stocks. I am not a licensed investment or tax adviser. All opinions are my own. This post may contain advertisements by Monumetric. This post may also contain internal links, affiliate links to BizBudding, Amazon, Bluehost, and Questrade, links to trusted external sites, and links to RTC social media accounts. Relatedĭividend Payout Ratio – Investors Should Seek Healthy Ratios Over High Ratios Do you rely on the dividend income or not?īecause if the stock is an excellent stock for the long term, and if you don’t need the dividend income now, reinvesting it is likely the best option. Is the stock you are reinvesting in an excellent stock for the long term?.In conclusion, dividend reinvestment plans can be an extraordinary method to build wealth.īut there are two factors to consider if you are planning to participate in a DRIP: If you are reinvesting for the next 10 to 40 years, it’s probably best to take advantage of DRIP.ĭRIP is short for dividend reinvestment plan.Ī DRIP stock allows investors to automatically purchase additional shares of the underlying stock with dividend payments. Simply put, if you rely on your dividend income, it’s best not to DRIP. Are DRIP Stocks a Good Investment?īesides the company being a high quality stock, the only other factor to consider is if you rely on the income or not. If it’s not a great stock, it might be better to reinvest the proceeds elsewhere. If it is, it could lead to exponential wealth. Ultimately, it comes down to whether you think the stock is a great long-term investment. However, untouched, long-term compound interest builds extraordinary wealth. Check out this article by Morgan Housel if you don’t believe me. So, even if the stock went to zero, you could have the original capital reinvested into other companies. I figured it was best to allocate capital to the best priced asset at the time of purchase rather than DRIP.Ī Stock like Altria Group ($MO) could return an original investment in 10 to 12 years, according to Dividend Growth Investor. Is it Better to Reinvest the Cash Automatically via DRIP or Invest Dividend Payments on Your Own?įor a long time, my view was that it’s better to reinvest dividends on your own. It will seem like a slow process at first, but 10 to 40 years is when compound interest starts to take over. If you select companies that raise dividends annually, a DRIP stock has the potential to create immense wealth over time.Įach year you add more shares by reinvesting dividends, and each year the dividend payment per share increases. Otherwise, DRIP stock investing may be the best way to take advantage of compound interest. In addition, a dividend reinvestment plan (DRIP) allows investors to buy additional shares without incurring commission fees.Īlthough commission fees are lower because of the rise of free trading, avoiding commission fees is still a tremendous advantage for investors. But it’s still necessary to rebalance your portfolio and evaluate the stocks from time to time. Investors can sit back and collect dividends and let compound interest do the work. However, you will need to check with your broker if that discount is available.ĭRIP stock investing also makes investing almost effortless. One of the main advantages of DRIP stocks is that some companies allow you to purchase shares at a lower cost.įor example, under Fortis’ DRIP plan, shareholders can purchase shares at a 2% discount. What are the Benefits of a Dividend Reinvestment Plan (DRIP)? Technically, a dividend reinvestment plan allows investors to receive a higher dividend payment every payment, because additional shares will pay dividends each time.įor this reason, DRIP stock investing can be a powerful tool to take advantage of compound interest. So, without doing anything at all, your stocks automatically purchase additional shares. DRIP Stock – Final Thoughts What is a DRIP Stock (Dividend Reinvestment Plan)?Īs you may have already noticed, DRIP stands for dividend reinvestment plan.Ī dividend reinvestment plan (DRIP) is a program that allows investors to automatically reinvest dividend payments into shares of the underlying stock on the dividend date.
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