What’s not to love about DRIPs?
We love DRIPs. Otherwise known as Dividend ReInvestment Plans, DRIPs are nothing more than an investment program where the dividends from stock ownership are automatically thrust into purchasing more shares of the corporation. Over the last 50 years, Altria, formerly Phillip Morris has operated the most successful Dividend Reinvestment Program.
For long term individual stock investors, DRIPs offer heavier compounding than taking dividend profits. Think of it this way, you can collect the $25 every 3 months for owning 100 shares, or you can add an extra 2-3% per year to your investment returns. Keep in mind it’s 2-3% advantages that have made Warren Buffett and George Soros their Billions, 2-3% advantage that has built Las Vegas and the same 2-3% that makes uneducated investors broke.
The fact is dividends are virtually free money. Rarely are dividends accounted for when making decisions on a company’s financial prospects. Most investors look for capital gains, or rise in share price and completely ignore the role that dividends play on an investment portfolio.
Unless you’re in a position where you need a fixed income, there is no reason not to reinvest your dividends back into stock. Consider this, $100 invested at 10% a year yields $4525 after 40 years the same amount invested at 13% a year (reinvesting 3% dividends) yields $13,278 after 40 years. The difference of 3 percent per year is TWICE as much money. Increasing returns by 30% triples your money, imagine that.
The best part about DRIPs is that they can be done directly through the company. The company directly sells shares to an investor and automatically rolls over dividends into the purchase of more shares. This is completely automatic and usually without commissions.
For the long term investor I suggest looking for DRIPs for any individual stock in your portfolio. Most blue chip corporations have a DRIP program and many more have offerings for DRIPs through brokerages. Make the most of your dividends, let them work for you.
The key to the DRIP program is
1. Finding stocks which go up long term
2. Companies that pay a divided and increase that dividend over time.
Companies come and go….so you have to be very careful which ones
you “own for the long haul”