I am not sure how exactly to ask this. Is there an added benefit to owning enough shares of a dividend paying company so that each quarter I get enough that another share or more can be reinvested? Therefore every quarter I have one or more additional shares and therefore am guaranteed to always make more in dividends. I can’t figure out the math. FYI I currently receive about 36.00 in dividends from GE quarterly and can therefore reinvest around 2 shares a quarter.
There is really no cumulative benefit to owning a certain amount of stock in a company.
You will always receive the same dividend per share. Dividends are a part of the return on your investment as a stockholder. You can use this cash for any purpose that you desire, including purchasing more shares. Please keep in mind that the more money that you have invested in a single stock, the more of a hit that you will take if that particular stock should tank.
If you are interested in reinvesting your dividends, then look into a dividend reinvestment plan (DIP). Some brokerages and most employee stock plans will offer a DIP where you will not be charged a commission on each purchase. While this would save you money on brokerage fees, you will loose the flexibility to use your dividends for any other purpose, such as purchasing shares of a different company or paying for dinner out.
As J mentioned, doing so in a tax deferred account will defer the payment of taxes on the dividends, whether you reinvest or not. Discuss the strategic use of any tax deferred investment strategy with your tax profession as the benefits and drawbacks vary dependent upon your specific situation.
On a personal note, I do own shares of the same company (GE) and consider it to be one of the top blue ribbon US public companies, and it has, in my opinion, a very low risk profile.
You can keep buying more shares, of the company you already hold shares in, using dividend payments received for your holding. Of course your dividend per share, will be only a small % of the cost for buying one share, (generally speaking) so you will not see a rapid rise in your dividend pay out if you only have a small holding. Of course dont forget nothing is guaranteed, dividends are only paid if the company you own shares in makes a profit, as recently displayed by BP, even the most succesful companies have circumstances arise which can cease or reduce the dividend.
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Your assumption is that dividends will stay the same or increase. So many companies have cut dividends in the last couple of years that you need to take that into consideration. Also companies use stock options to compensate their executives so rather than increase dividends (which are taxable) they buy back shares which helps increase the share price. That way the executives can take a capital gain, taxed lower and can time it to when it is convenient to them.
That being said, there is a lot to say for reinvesting dividends – but do it in an IRA or other tax sheltered account so that you won’t have to pay taxes on the dividends each year.
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There is really no cumulative benefit to owning a certain amount of stock in a company.
You will always receive the same dividend per share. Dividends are a part of the return on your investment as a stockholder. You can use this cash for any purpose that you desire, including purchasing more shares. Please keep in mind that the more money that you have invested in a single stock, the more of a hit that you will take if that particular stock should tank.
If you are interested in reinvesting your dividends, then look into a dividend reinvestment plan (DIP). Some brokerages and most employee stock plans will offer a DIP where you will not be charged a commission on each purchase. While this would save you money on brokerage fees, you will loose the flexibility to use your dividends for any other purpose, such as purchasing shares of a different company or paying for dinner out.
As J mentioned, doing so in a tax deferred account will defer the payment of taxes on the dividends, whether you reinvest or not. Discuss the strategic use of any tax deferred investment strategy with your tax profession as the benefits and drawbacks vary dependent upon your specific situation.
On a personal note, I do own shares of the same company (GE) and consider it to be one of the top blue ribbon US public companies, and it has, in my opinion, a very low risk profile.
References :