Introduction to Dividend Reinvestment
Dividend reinvestment is a systematic method of accumulating shares of a stock that pays a dividend. With a dividend reinvestment program you automatically purchase shares each time that you receive a dividend. Over many years shares add up and increase your returns without laying out new money.
See Dividend Reinvestment Pays for table that shows 20-year returns with and without dividend reinvestment for a $10,000 initial investment for twelve dividend-paying stocks.
Because you pay taxes on dividends, consider putting dividend reinvestment stocks in a retirement account so you can shelter the dividends from your current tax liability.
Setting up Your Dividend Reinvestment Account
Here are six ways to reinvest dividends:
Use a full-service broker. Most brokerage firms let you reinvest dividends for the stocks you own in your account. Ask your broker for details.
Use an Internet discount broker who offers dividend reinvestment.
Buy directly from a company. Contact a company through its web site. Be sure to understand the fees charged by a direct stock purchase plan. See Kellogg's Direct Stock Purchase Plan.
- See All Investment Plans at Wells Fargo Shareowner Online for many companies that offer direct stock purchase and dividend reinvestment plans.
- See Buy Stock Direct at Computershare for a comprehensive list of companies that offer direct stock purchase and dividend reinvestment plans.
Always inquire about the fees associated with reinvesting dividends because some plans charge hefty fees. Remember that any fee, no matter the amount, reduces your returns.
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