This technique might be hatched in several methods. Many dividend-paying corporations and funds run dividend reinvestment plans (DRIPs), which do what they are saying on the bottle: They use a shareholder’s payouts to purchase extra inventory of that firm. Brokerages and different third events typically provide this service, too, and these might be the go-to for traders curious about dividend reinvestment in corporations that do not have proprietary DRIPs.
Buyers can set many of those plans on autopilot, having them make investments again all or a few of every dividend payout.
DRIPs, by the way in which, are sometimes commission-free, as are fairly a couple of of the applications run by outsiders. These freebies are plentiful, so there’s normally little motive to pay any charges for collaborating in a single.
The truth is, you are able to do it your self. It is easy sufficient for an investor to show a dividend cost round, utilizing the money obtained to buy new inventory within the firm doing the paying. In fact, there will likely be some cash left over, but it surely’s simple sufficient to maintain a report of this “change,” which might be tacked onto the next dividend payout(s) to assist purchase extra shares.
By the way in which, many DRIPs and third-party applications reinvest into fractional shares, which erases the burden of getting to cope with or account for that leftover money.
One stable reinvestment play is to plow distributions again right into a Dividend Aristocrat — one of many comparatively small clutch of S&P 500 index shares that has raised its shareholder distribution at the least as soon as yearly for no less than 25 years working.