Dividend Reinvestment

What Is It?

Dividend reinvestment programs (DRIPs) allow investors to reinvest the dividends paid on the stock of a company back into the stock. Thus, rather than receiving a dividend check, the number of shares they own in the company increases by the amount of the dividend.

For instance, if you owned 500 shares of a stock worth $10 a share and it paid a dividend of $.10 per share, you would normally receive a check for $50. If you enroll in a DRIP, instead of taking the $50 in cash you would reinvest it by purchasing $50 worth (5) of additional shares, bringing your total shares up to 505.

SmartWealth enables automated dividend reinvestment, whereby the dividends you receive periodically will by default be reinvested into the portfolio, rather than having them deposited in your bank account.

What Is It Used For?

Reinvesting dividends in this way enables retail investors to acquire more shares of a stock, mutual fund or ETF without having to pay a brokerage commission. This makes DRIP plans a cost-effective method of adding to your holdings in an investment.

Using a DRIP with SmartWealth helps you reach your financial goals faster through the magic of compounding. By earning returns on your returns, your money grows faster than it would if you took your dividends in cash.

With SmartWealth, the dividends paid by stock and bond ETFs held in your portfolio are automatically reinvested into your portfolio. This assists in retaining your portfolio’s risk level, as the dividends are reinvested back in the ETFs already in the portfolio.

Other Considerations

Reinvesting dividends subjects the reinvested money to investment risk if markets experience a downturn. If you want to increase your cash reserves or level of funds that are not invested in the market, and thus minimize investment risk, having dividends paid out in cash is the alternative.