Comments on: Reinvest Dividends for Greater Long-Term Growth

By: bob

bob — Fri, 06 Jan 2012 23:37:35 +0000

$13,000.00 invested in BCE ($41.83 on the Canadian TSX ) yields 5.122% giving divident of $672.70 on 310 shares ($2.17 per year per share div.) You could easily safely double your dividends.

By: Dean Voelker

Dean Voelker — Thu, 11 Mar 2010 20:49:05 +0000

Dividend reinvesting is very important for long term growth. I recently also wrote about dividends in my blog “Improving Your Financial Health”. The article is titled “Taking Stock” and mentions companies which have raised their dividend payment for at least 25 years in a row. Coca-Cola is one of these companies. AT&T and Pfizer are not. You can click on my name to see the article.

By: kt

kt — Thu, 11 Mar 2010 06:39:03 +0000

dividend reivesting works best with long term value investing and not that day trading stuff.everybody would like a little more money but we have to be a little disciplined with income

By: Budgeting in the Fun Stuff

Budgeting in the Fun Stuff — Wed, 10 Mar 2010 18:12:31 +0000

My husband lets our dividends build up in our Scottrade account and then reinvests them along with our regular money. According to our tax stuff, we made over $250 just in dividends last year and we aren’t big investors (like <$13,000 total)…

By: almost there

almost there — Wed, 10 Mar 2010 17:04:10 +0000

I was thinking of investing in the vanguard dividend appreciation index fund but when I compared it with their total stock market index fund it did not return the investment as well.

By: Sid in Missouri

Sid in Missouri — Wed, 10 Mar 2010 14:31:28 +0000

Good article on DRIPs. They should be a part of any investment strategy that includes cash returned to the investor. That said, I’m still not impressed with the dividend investing strategy as a way to make you wealthy. A 6.5% return on investment is not impressive, especially considering the risk involved in single-stock investing. After factoring in average yearly inflation of 3%, it still beats the current rate on a CD or savings account, but not by much. The double trap of dividend investing is also this: if the stock price does go up (Yaaa!), your yield typically goes down (Booo!).

For example: company X pays $1 yearly dividend on a share of stock that you purchased for $10. That’s a 10% yield (yearly dividend divided by stock purchase price). Let’s say that over the course of a year the stock price rises to $12 and the company raises it’s dividend to $1.02 per share. You buy another share, but this time your yield is only 8.5%. The next year the price goes to $14 and the dividend to $1.10. Your yield on this newly purchased share is only 7.8%. Granted, the first share you purchased is now yielding 11% (1% more than originally) but that’s pretty paltry compared to the fact that newly purchased share yields are down 2.2%. The gain in your share price is a one-time event and it can disappear in a market downturn.

Bottom line is this: to assume that your investment will grow linearly like the example you give is not valid. Typically the stock price will fluctuate and with it, the yield. Therefore, it is not as “auto-pilot, stress-free” as this post assumes. You still have to review your investments at least quarterly to see what price you are paying to earn that dividend and decide if you should buy more of the same company or look elsewhere for better yields. Also, you are banking heavily on single or just a few stocks, which can and do fluctuate massively. Look at the share price of AT&T over the last 10 years. You will see it did what most single stocks did: it peaked in 2001 at about $55, twice the price that it is today, and the dividend rate today is $1.68 per share. Anyone who bought for dividends in 2001 is hating life today since their yields are a pathetic 3% on those shares.

If you are going to invest in the market in the most auto-pilot way with the best chance of beating inflation and growing your portfolio to a size where you can enjoy retirement is (I say again) best served with growth stock mutual funds. There are funds that have a long-term (more than 30 year) history of averaging 10% or better returns. Dividend investing is fine once you’ve accumulated a pile of cash, but you need a better strategy to get that pile of cash in the first place. I don’t need a car/mortgage payment when I retire: I need a life-time full income supply. For the amount I have to invest, dividends won’t get me there.

By: The Biz of Life

The Biz of Life — Wed, 10 Mar 2010 13:58:14 +0000

I think DRIPs are an anachronism. I enrolled in a number of them many years ago. Boy was that a mistake and a PITA to get out of. I will never do that again. If you must buy individual stocks as an individual investor, better to buy from a discount broker and have them reinvest the dividends. But the preferred route is to purchase a dividend or value oriented low-cost ETF and reinvest. That way the small investor gets some diversification, and doesn’t have their financial fortunes tied to a handful of companies. Compounding is the 8th wonder of the world, but needs to be tempered by some common sense.

By: Don@Moneyreasons

Don@Moneyreasons — Wed, 10 Mar 2010 11:34:51 +0000

Thanks for pointing that out. It’s funny how often times, we just look at the dividend percent and just assume that it’s the percentage that it will alwaye be paid out!

I’ve been thinking about the taxes quite a bit lately, and I’m thinking of moving my dividend stocks into a Roth IRA. That should take the bite out of the taxman’s teeth!