Does it make sense to reinvest dividends or to take them out and invest elsewhere?
Answers
699 points
7million7years answered one year ago …
Warren Buffett 'forces' reinvesting dividends simply by not issuing them in the first place! His reasoning is that you won't find a better use (as in 'a better return') for your dividend elsewhere ...
... so the that's the simple test for you: what would you do with the dividend? Will you get a better return elsewhere (presumably not, otherwise you wouldn't be owning the stock in the first place!)?
4037 points
MNSL answered one year ago …
If the stock is outstanding one and current stock price is reasonable it is better to reinvest in it. You can get compound return together with capital gain.
I think if the current stock price is in the bubble stage it is not wise to reinvest and better to take the dividend and reinvest it somewhere where there is a real value.
Still we can find stocks with dividend over 15% and more rooms for capital appreciation. Some of these stocks have outperformed the market in some countries. In some situation compound interest is very important in stock investing. Really if we can identify some outstanding dividend stocks and if we can keep at least for five years reinvesting dividend we can get compound return together with capital gain. Some times these stocks are better than growth stocks and stocks without dividend.
Some investors say when companies declare dividend there will be affect on appreciation of stock price. They prefer future growth and higher prices for their stocks. However there are plenty of companies still their share prices go higher and higher in spite of declaring higher dividends every year
180 points
musti answered one year ago …
Apart from the outlook for the stock in question - of course reinvesting only makes sense if you believe in the stock's future potential - you should also consider the (net) amount of the dividend you're receiving. If it is only in the two (or low 3) digits (what is usually the case for me, since I don't invest 5-digit sums into an individual stock), reinvesting is simply too expensive because you mustn't forget the commissions. In this case, simply add the dividends to your capital base.
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zellic answered one year ago …
I usually buy stock that have dividend re-investment plans, This eliminates the commission. If a stock has good track record for paying and increasing dividends, it is a good investment for the long term, because many of this companies are solid investments in the first place. Also, DRP's are a good form of compounding your investment and building your portfolio.
Also stock that have an Option Stock Purchase plan. Bypass the broker and eliminate the commissions.
379 points
dustbusterz answered one year ago …
i think you must take into account the stock that is giving the dividend . if it is still attractively priced, then you can reinvest it, however, there is a second issue to look at. that is the issue of allocations. you don't want too much of your money in any one stock as you could be in for a big surprise, if for any reason, that stock should drop in price. so looking at the health of the current stock, and also at your ,to make certain your not over invested in that particular stock, then make your decision.
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