Any Dividend Stock Investors Here? Question on Reinvesting

[Tidybuoy]

I have a question about dividend stock investing - specifically reinvesting your dividends.

I get dividends every month and I always reinvest. However, I don't do this thru any DRIP system. Rather, the cash is posted to my account and then I go stock shopping. This way, I can build up stocks of my choice. Also, it has always been my opinion that I could get screwed if the dividend is given on a high-value day and so I would get fewer shares. Instead, I let the cash sit in my account and buy, usually within a couple of weeks, when the market has a down day.

Someone told me that I should be reinvesting thru a DRIP program because when they distribute shares, they are diluting the overall stock and therefore I would always be getting more shares due to the diluted price.

I'm wondering what you guys think...

Thanks,

[masraum]

Interesting. I'm curious to hear the results. I've always been of the opinion that a DRIP is the way to go, but for no apparent reason. I guess just simplicity.

[Dixie]

Reinvest via DRIP. When your 64 and wasting time on a car forum for a marque you don't own? Spend the dividends.

One advantage is that DRIP allows you to buy fractional shares.

[masraum]

Originally Posted by Dixie

Reinvest via DRIP. When your 64 and wasting time on a car forum for a marque you don't own? Spend the dividends.

One advantage is that DRIP allows you to buy fractional shares.

Would the fact that you're able to buy fractional shares sooner possibly/probably out-weigh or at least negate that he waits until the price dips to buy in too?

[MBAtarga]

Originally Posted by Tidybuoy

Someone told me that I should be reinvesting thru a DRIP program because when they distribute shares, they are diluting the overall stock and therefore I would always be getting more shares due to the diluted price.

Thanks,

I don't understand that statement. It makes no sense. That person doesn't understand what they are claiming - or maybe didn't explain it well.

I think what that implies is that if everything about the company and financial results is static, upon issuing dividends and then DRIP participants use it to buy the stock, the number of shares continues to increase. As the number of shares increase - again with no change in financials, the stock is diluted and the price drops and each dividend payout you are buying more shares.

But that also means that the dividends you bought previously are worth less. Which is NOT what you want to happen.

In the real world, the company becomes more profitable, the stock goes up, and the previously purchased shares from way back that were bought at very low prices are worth more.

I've got a DRIP stock that in 1992 we initially invested $500 which bought 9.5 shares. We have not put in another single dollar - but DRIP'd since. Last dividend was in May and paid out $79. Our current holdings are close to 80 shares worth over $13k - which has averaged at 8% return. Not fantastic - but not bad. It's a very small portion of our portfolio.

[Dixie]

Originally Posted by masraum

Would the fact that you're able to buy fractional shares sooner possibly/probably out-weigh or at least negate that he waits until the price dips to buy in too?

The effect of dollar-cost averaging makes that moot.

[Dixie]

Originally Posted by MBAtarga

I don't understand that statement. It makes no sense. That person doesn't understand what they are claiming...

I'm going with what they're trying to say is, most DRIPs allow investors to buy at a significant discount to the current share price, which is accurate.

[speedster911]

I am like you. I have stock dividends deposited in a cash account and then purchase what I want, when I want. Sometimes I dollar coast average into the stock paying me.

My reasoning- when your old like me, DRIP in specific stock would potentially mean I have more shares than I want. Additionally, a nice paying dividend stock that was doing well/attractive 30-40 years ago, potentially may not be a purchase I would make today( AT&T, IMB etc.) but the dividends are still OK so I may keep them.

On the flip side, I do reinvest distributions in almost all the funds I own.

I recognize that I have left money on the table over the years- But I sleep well with my approach and blessed to to have had it work well for me.

[masraum]

Originally Posted by speedster911

I am like you. I have stock dividends deposited in a cash account and then purchase what I want, when I want. Sometimes I dollar coast average into the stock paying me.

My reasoning- when your old like me, DRIP in specific stock would potentially mean I have more shares than I want. Additionally, a nice paying dividend stock that was doing well/attractive 30-40 years ago, potentially may not be a purchase I would make today( AT&T, IMB etc.) but the dividends are still OK so I may keep them.

On the flip side, I do reinvest distributions in almost all the funds I own.

I recognize that I have left money on the table over the years- But I sleep well with my approach and blessed to to have had it work well for me.

But if you participate in DRIP, then the number of stocks that you own increases, and you get larger dividends. So isn't it still a win?

[masraum]

Originally Posted by Dixie

The effect of dollar-cost averaging makes that moot.

I think that's what I tried to say (and did poorly).

[masraum]

Originally Posted by Dixie

I'm going with what they're trying to say is, most DRIPs allow investors to buy at a significant discount to the current share price, which is accurate.

There you are. I'd forgotten that, but remember reading it somewhere now that you mention it. I assume it's similar to many employee stock purchase plans, and is supposed to be an incentive to enroll.

[speedster911]

Originally Posted by masraum

But if you participate in DRIP, then the number of stocks that you own increases, and you get larger dividends. So isn't it still a win?

Sure its a win, not saying it wasn't.

Point I was trying to make is if I own several thousand shares of X stock, I take those dividends so I can eventually own thousands of shares of Y and Z stock - and from those dividends I buy ......

Someone stated spend the dividends at my age, but I still enjoy the up and down of the market. I don't go to Vegas, I gamble on stocks.

[Superman]

A company financing growth would not pay dividends. Investors would be better off financing that growth instead of receiving dividents if the gross profit on the growth is as robust as it should be. I prefer gold or bonds over companies not growing.

[Dixie]

Originally Posted by Superman

A company financing growth would not pay dividends. Investors would be better off financing that growth instead of receiving dividents if the gross profit on the growth is as robust as it should be. I prefer gold or bonds over companies not growing.

There is nothing wrong with this, as long as it works for you.

That said, companies that consistently pay dividends are some of the most stable companies to invest in. These companies pay dividend to send a clear, powerful message about their future prospects and performance. Their ability to pay steady dividends over time provides a solid demonstration of their financial strength.

Being retired, I like investing in dividend stocks, bonds, and pretty lingerie. After all, no man has ever gotten excited by seeing my portfolio.

[zakthor]

Im missing something basic.

Arent dividends taxed as income?

Instead of reinvesting in the dividend stock shouldn’t you just put the dividends into an etf like vt?

[Dixie]

Originally Posted by zakthor

Im missing something basic.

Arent dividends taxed as income?

Instead of reinvesting in the dividend stock shouldn’t you just put the dividends into an etf like vt?

I'm not aware of any stock, fund, or ETF that will let you direct your reinvestment into a different fund, say from SPYD to VT. I only know that when the SPYD ETF pays a dividend you can have that dividend automatically reinvested into more SPYD. Then again, I'm not a broker. I'm just a retired woman with a couple bucks to her name.

[Superman]

Men don't get excited seeing my portfolio either, which is fine, and I don't look good in lingerie but I can understand a company paying dividends. That would be a mature company which declines opportunities, or has no reasonable opportunities, for rapid growth. Coca-Cola comes to mind. That's a pretty safe stock. But a divided yield of just $2.97% according to Nasdaq. And then I notice a 24% increase in share value over the last year. This suggests their dividend payments are canary poop from the perspective of their stock holders. Who would have been better off if the company had instead invested that money in operations. Then I noticed from their income statement that profits are about 25% of revenues. That's mighty good.

I own stock in a company whose stock price almost doubled in the last year, and I consider this company to be financially quite conservative and safe.

[Tidybuoy]

To make my original post more clear, I have two examples below:

1) If I own Prudential. Under the DRIP program, I get a dividend from Prudential on July 31st. Let's say that Prudential stock is trading at $123 per share today but for unknown reasons spikes to $130 on July 30th. When I get my dividend on the 30th, I will get 15 shares at $130. One week later, the stock reverts to $125. I get fewer shares on the 31st than I would have if the stock stayed at $123.

2) If I had received a cash dividend rather than DRIP stock, I am able to choose to buy Prudential or I can increase my position in Realty Income as I feel that the Reit is going to do better in the future, and it is a bargain today. Instead of being forced to reinvest in Prudential, I use the dividend cash for other purposes.

Lastly, I have a blend of growth stocks and dividend stocks as well as ETF's. I like to use my dividend cash to expand my portfolio as I wish. BUT, someone told me that DRIP dividends are issued at a discount, and I am wondering if that is true.

[masraum]

Originally Posted by Tidybuoy

To make my original post more clear, I have two examples below:

1) If I own Prudential. Under the DRIP program, I get a dividend from Prudential on July 31st. Let's say that Prudential stock is trading at $123 per share today but for unknown reasons spikes to $130 on July 30th. When I get my dividend on the 30th, I will get 15 shares at $130. One week later, the stock reverts to $125. I get fewer shares on the 31st than I would have if the stock stayed at $123.

But, didn't we decide that if your DRIP buys you stocks, that instead of paying $130, that you are getting a discount. And I found one website that said that most DRIP give a 3-5% discount, so if Prudential's DRIP fits the example of the website, you'd have paid somewhere between $123.50 and $126.10.

Of course, the DRIP doesn't allow you to put that money anywhere else.

[Tidybuoy]

Originally Posted by speedster911

I am like you. I have stock dividends deposited in a cash account and then purchase what I want, when I want. Sometimes I dollar coast average into the stock paying me.

My reasoning- when your old like me, DRIP in specific stock would potentially mean I have more shares than I want. Additionally, a nice paying dividend stock that was doing well/attractive 30-40 years ago, potentially may not be a purchase I would make today( AT&T, IMB etc.) but the dividends are still OK so I may keep them.

On the flip side, I do reinvest distributions in almost all the funds I own.

I recognize that I have left money on the table over the years- But I sleep well with my approach and blessed to to have had it work well for me.

Originally Posted by speedster911

Sure its a win, not saying it wasn't.

Point I was trying to make is if I own several thousand shares of X stock, I take those dividends so I can eventually own thousands of shares of Y and Z stock - and from those dividends I buy ......

Someone stated spend the dividends at my age, but I still enjoy the up and down of the market. I don't go to Vegas, I gamble on stocks.

I do similar - I tend to just grow my existing portfolio by investing in stocks I currently own. However, I like to pick and choose what I am buying in any particular week. It makes investing more interesting if I have to select my purchases rather than have it in "Auto DRIP" mode.

I am also trying to build up certain stocks and ETF's (i.e., I buy one Berkshire (B) per month. Although that is technically a stock, I consider it a type of mutual fund). I'm also trying to build certain sectors, so doing everything thru DRIP defeats that option. I'm getting a decent amount of dividends each month and add my own money so my portfolio is growing - I only have a few more years before I stop working and will be using my portfolio to live on. Like many, I am catching up and wish I had started investing at a much younger age - but, I'm getting there.

Lastly, all of my dividend stocks (except 1) are "dividend aristocrats", so they are well established companies with reliable dividends.

Originally Posted by zakthor

Im missing something basic.

Arent dividends taxed as income?

Instead of reinvesting in the dividend stock shouldn’t you just put the dividends into an etf like vt?

Yes, dividends are taxed and some worse than others if they are not "qualified". Therefore, I tend to hold dividend paying stocks in my IRA and Roth. My ordinary account is used for growth stocks.