Tuesday, March 10, 2015

Turbocharge Income Growth with Dividend Reinvestment

Many of you are aware of the power of compounding. When you invest in a company that manages to grow dividends every year, and you are able to reinvest those dividends as well, you are turbocharging the growth of your dividend income. If you put in that potent combination in a tax-advantaged account such as a Roth IRA, and you have essentially planted a seed that will generate tax-free income for many years to come.

I usually reinvest dividends automatically only in my tax-deferred accounts such as IRA’s. I always reinvest dividends automatically in tax-deferred accounts, because I am limited in the amount and timing of contributions, and I cannot easily move money from one account to another. I recently reviewed two separate investments I made in Roth IRA on two separate occasions in the past.

The first investment I did in a Roth IRA was in 2009, when I purchased shares of Abbott Laboratories (ABT). After 6 years of reinvesting dividends, I ended up with shares of ABBV and ABT, which are generating approximately 8.90% on the amount I put to work initially. I was able to achieve this merely by checking the button to “reinvest dividends”. I liked the company Abbott between 2008 and 2012 ( prior to its split). I am still holding on to both shares, and I still reinvest those dividends in the Roth IRA.

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Full Disclosure: ABT, ABBV, PM, WMT, KO, O,

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