Reinvested dividends have contributed most all of the stock markets total returns over large periods of time. Some dividend investors automatically reinvest their distributions over time, which leads to compounding of their income and principal. Others do not reinvest automatically and instead wait for distributions to accumulate before adding onto existing positions or initiating new ones.
Dividends could be either sitting there or get reinvested. The beauty of dividends is that it is under the discretion of the individual investor to purchase more stock, buy equity in a different company/investment or spend it another way.
I do reinvest only a portion of my stocks directly; most other times however I let my dividends accumulate and I either re-invest in the same stock/s or in new stocks that have been on my watchlist.
It is important to keep costs as low as possible when allocating dividend income for reinvestment. Thus it is wise to open a discount brokerage account at places such as Zecco, Tradeking, Scottrade or Sharebuilder, which have relatively easy to use platforms and low commissions for stock trades.
I don't typically look at dividend reinvestment on an issue-by-issue basis, but through the lenses of a diversified dividend portfolio. If I had received enough dividends to purchase an additional position and I had to choose between investing in the energy company Chevron (CVX) or the consumer staple Johnson & Johnson (JNJ) I would most likely reinvest my distributions into the energy sector if I were under allocated there.I also do not reinvest dividends if the companies I own do not pass my entry criteria at the time or companies which are way off base my entry criteria. I am a little more relaxed when it comes to reinvesting dividends versus initiating a position in a stock. I could reinvest dividends even if the payout ratio increased beyond 50% to say 60% or even if the current yield is about 2.70% and not 3%. I am pretty strict however about not paying more than 20 times earnings on a given stock. This is the main reason why I automatically reinvest only some of my position in Realty Income (O).
Some attractively valued stocks for dividend reinvestment right now include:
Pepsi Co (PEP) analysis
Clorox (CLX) analysis
Automated Data Processing (ADP) analysis
Kinder Morgan (KMP) analysis
Sysco Corp (SYY) analysis
Selective dividend reinvestment avoids purchasing overpriced shares with your monthly or quarterly distributions, which could be a real drag on total returns and portfolio income. It is important however not to get overallocated in a particular stock or group of stocks as well, as diversification should be also taken in consideration when dividends are being reinvested.
Full Disclosure: Long all stocks mentioned above
Relevant Articles:
- Zecco Online Discount Stock Brokerage Review
- Johnson & Johnson - a solid dividend aristocrat
- Dividend Portfolio Investing for monthly income
- Why should companies pay out dividends?
Popular Posts
-
As an investor, I am aware that I have a lot of blind spots. Someone with a glass half full outlook on life might say that I have a lot of r...
-
Dollar cost averaging is a process, where the same amount of funds is allocated to preset investment/s at regular intervals of time. It is ...
-
I review the list of dividend increases as part of my monitoring process. This exercise helps me monitor existing holdings. It also helps me...
-
Warren Buffett’s Berkshire Hathaway just received a dividend check for $194 million dollars from Coca-Cola. Berkshire Hathaway owns 400 mil...
-
The Dow Jones U.S. Dividend 100 Index is designed to measure the performance of high-dividend-yielding stocks in the U.S. with a record of c...
-
I review the list of dividend increases every week, as part of my monitoring process. This exercise helps me monitor existing holdings but a...
-
The Procter & Gamble Company (PG) provides branded consumer packaged goods worldwide. It operates through five segments: Beauty; Groomi...
-
One of my favorite charts shows a listing of eleven consumer goods companies, and the brands that they own. It reinforces my belief that str...
-
I review the list of dividend increases every week, as part of my monitoring process. This exercise helps in monitoring existing positions a...
-
A pattern of steady dividend payments and dividend increases is only possible if a business can generate enough cashflows to support operati...