Happy Friday!
What exactly is a dividend?
Dividends are a distribution of a portion of a company's earnings to its shareholders, and the amount is set by the board of directors. Most people are aware that owning stocks over a long period of time is one of the best ways for anyone to grow an investment account. But what many don’t realize is the importance of dividends to achieving overall portfolio growth. Dividend reinvestment is the real fuel to the market’s long-term compounding. Most experts estimate that dividends are responsible for the bulk of the market’s long term returns, anywhere from 50% to 70%, depending on your time frame.
Many individual companies, funds, and discount brokerages all offer dividend reinvestment programs, aka DRIPs. DRIPs are one of the most effective tools for making your money work hard for you and to build wealth over time, yet many investors have never heard of them.
What’s a DRIP?
DRIPs are a method to automate reinvesting the cash dividend you receive into additional shares of the company or fund. The easiest way is through your brokerage. Most will have a feature that allows you to toggle automatic dividend reinvestment on or off for any particular stock.
How DRIP Investing helps you build wealth
The DRIP plans I have used at brokerages do not charge a fee and can handle fractional shares. Many companies and funds will even offer a small discount for participating in their DRIP plan. Why so generous, you might ask?
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