NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities. Dividend reinvestment is when you own stock in a company that pays dividends , and you choose to have those dividends reinvested, rather than receiving the dividends as cash.
Many companies pay out dividends to their stockholders. When you reinvest your dividends, you use those payments to buy more company stock. Dividend reinvestment, like any investment, has pros and cons. But reinvesting dividends can be a powerful way to boost your returns over the long term. There are two main ways to set up a dividend reinvestment plan:. You can invest directly in the dividend reinvestment plan, or DRIP, offered by the company you want to invest in, assuming it has one.
If you invest through a brokerage account, many stock brokers will let you choose to reinvest your dividends, rather than receive them as payouts. You can purchase stock by reinvesting your dividends, and often, companies will let you buy additional stock on a fractional basis.
That means you can buy small pieces of the stock with your dividend reinvestment, rather than waiting until you have enough to purchase a full share. Companies sometimes offer their stock at a discount to the market price in some cases, the discount is available only on the shares purchased through dividend reinvestment, not the optional cash purchases.
See if automatically reinvesting your IRA dividends makes sense for you. This could mean the price of the stock has fluctuated. One solution is to buy a single share from a broker and then ask the broker to register that share in your name the broker likely will charge a fee for this service.
There may be enrollment and other fees, which often cost more than reinvesting dividends through a brokerage account. The primary reason to reinvest your dividends is that doing so allows you to buy more shares and build wealth over time. If you examine your returns 10 or 20 years later, reinvesting is more likely to increase the value of your investment than if you simply took the cash.
Also, reinvesting allows you to purchase fractional shares and get discounted prices. There are times when it makes better sense to take the cash instead of reinvesting dividends. DRIPs are dividend reinvestment plans. Companies often have DRIPs, which automatically reinvest dividends by buying more shares for an investor. DRIPs can make reinvesting your dividends easy, cheap, and consistent.
One of the key benefits of dividend reinvestment is that your investment can grow faster than if you pocket your dividends and rely solely on capital gains to generate wealth. Investing Essentials. Top Mutual Funds. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content.
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