How Dividend Reinvestment can 5X Your Returns [Must-See Strategies]
- Articles, Blog

How Dividend Reinvestment can 5X Your Returns [Must-See Strategies]


What is dividend reinvestment and how can
you use it to grow your dough? In this video, I’ll explain dividend reinvestment
plans, how to set one up and two strategies to make your dividends grow faster. We’re talking reinvesting dividends today
on Let’s Talk Money! Beat debt. Make money. Make your money work for you. Creating the financial future you deserve. Let’s Talk Money! Hey Bowtie Nation, Joseph Hogue with the Let’s
Talk Money channel. A special shout-out to all you in the nation,
thank you for spending a part of your day here. If you’re not part of the community yet,
just click that little red subscribe button. It’s free and you’ll never miss an episode. Those of you in the nation know, I LOVE dividend
stocks. Seeing those dividend checks hit your account,
it just feels like you’re doing everything right and reinvesting those dividends is the
best way to grow your portfolio. But there’s a lot more to dividend reinvestment
than just putting that money back to work. It’s not only finding the right dividend
reinvestment plan but understanding how taxes work on those cash payments and how to make
your dividends work harder. So I’m going to use this video as a complete
guide on dividend reinvestment. I’ll explain DRIPs or dividend reinvestment
plans and show you how to set these up even if a company doesn’t have a formal plan. I’ll show you the two ways dividends are
taxed and how to make sure you get the most from your money. I’m then going to reveal two dividend reinvesting
strategies, two strategies that go beyond simple reinvesting to make you as much money
as possible. I’ll be sharing those towards the end of
the video so make sure you stick around. There are two types of dividend reinvestment
we’ll talk about today. The first is a formal dividend reinvestment
plan, also called a DRIP. These are set up by a dividend-paying company
and allows investors to reinvest dividends directly back into the company to buy more
shares. I’m also going to show you how to create
a dividend reinvestment plan on your own, including how to set these up even if the
company doesn’t offer it. I’m going to show you how to set up a dividend
reinvestment plan but first, the question of whether you should even reinvest your dividends. I reinvest every penny I receive but there
might be instances where you don’t want to do that. For example, if you need the cash flow to
pay living expenses, dividends can be a great source so you don’t have to sell stocks. Depending on how much in dividends you receive,
you might be able to live on that alone. You also might not reinvest the dividends
if you’re unsure of where the stock market is heading. Maybe stocks are looking expensive so you
want to keep that money in cash or invest it in safer bonds. It’s kind of ironic that people complain
all the time about companies buying back shares when prices are high, basically using company
cash to reinvest in the shares, but those same investors think nothing of plowing their
own dividend money back into the shares. Normally, for most investors, I would say
definitely reinvest your dividends. This doesn’t mean you should reinvest the
cash into the same company and we’ll get to a few strategies you can use. But just generally reinvesting your money
is going to grow your portfolio faster from those compounding returns. We’ll get to setting up a reinvestment plan
and those dividend reinvesting strategies but first I want to get your feedback. Do you reinvest dividends and how do you decide
where to reinvest your money? Do you reinvest in the same company, across
your portfolio or how do you make that decision. So scroll down and let me know in the comments,
how you make the reinvestment decision. There are three ways you can reinvest your
dividends. I’m going to show you how to set each one
up as well as the pros and cons of each. The old school way to get into a dividend
reinvestment plan used to be directly through the company. So if you wanted to reinvest those sweet 3%
dividends from Coca-Cola, you would go to the website and look for its DRIP program. Here we see that Coca-Cola manages its direct
stock program through Computershares which happens to manage a lot of companies’ programs. You can scroll through the companies here
and click through to Coca-Cola to see plan details, fees and all this other information. So here, you’re investing directly into
shares of Coca-Cola through the company, Computershares just manages the program. And every time you get a dividend, it’s
going to be reinvested in more stock. Pros of these direct DRIP programs are that
some companies offer a discount on their shares, the fees are usually pretty low and you can
usually buy fractional shares. So if you receive a $5 dividend but shares
are $50, the program will reinvest your money into a partial share instead of making you
wait for a whole share. Of course the downside to these programs is
that you might have shares in ten different companies all on different websites and it
can be a pain to keep track of. The second way to reinvest dividends is going
to be through your online investing sites. Most of these are set up the same but I’ll
show you on my ETrade account. I’ll go to the dividend reinvestment page
here in the menu or I can do a search for dividend reinvestment in the search box. There’s a drop-down for each account, so
make sure you do this for each investment account you have on the site. I can enroll the entire account to reinvest
dividends or I can choose to only reinvest dividends from specific stocks. So down here it lists each dividend stock
I have in the account. This is my traditional IRA where I hold a
lot of my REITs. And I can see the dividend yield, amount as
well as the next ex-dividend date and payment date. Here if I click on a box next to one of these,
I can enroll that stock to reinvest the dividends automatically. I can do that for any stocks in each of my
accounts here, so you see I’ve got three accounts, a regular taxable account, a traditional
IRA and a self-employed IRA. The upside to this method is that it makes
keeping track of your dividends so much easier. You can keep all your investments in one place
and decide which stocks you want to enroll in dividend reinvestment. You get one 1099-DIV tax form each year from
the investment site instead of one from each company. The downside to this is that you can only
reinvest dividends from a company into the shares of that same company. To solve this problem, I’ve got a third
reinvestment method you should check out. I originally started investing on M1 Finance
for our 2019 Stock Market Challenge portfolio. This was when most platforms charged a commission
to buy stocks so I loved M1 for it’s no-fee model. Now that ETrade and most of the other sites
have switched to no-commissions, it’s not as much an advantage but I still love the
platform for one important feature. M1 Finance will allow you to automatically
reinvest your dividends and any cash across your entire portfolio. All you do is click on this auto-invest link
up here and it will give you three options for cash balance control. You can tell the platform that whenever your
account reaches $10 in uninvested cash, you want to automatically reinvest it across the
portfolio. You can toggle this second one here to tell
the platform when to reinvest or you can turn off the auto-invest feature. What this is going to do, instead of just
reinvesting your dividends directly in the same stock, it’s going to split your money
up and reinvest across all the stocks in your portfolio. So when you set up your account, you tell
M1 what percentage of your money you want in each stock and that’s what it’s going
to use to reinvest your cash. The advantage here is that you keep a more
diversified portfolio. You’re not just reinvesting in one stock
but spreading your money across all the stocks you own. M1 also allows that fractional share investing
so you get a portion of shares even if you’re not investing enough for a full share. The downside is that maybe you want to reinvest
your money back into that one stock, maybe you don’t want to reinvest across all the
stocks in your portfolio. Of course, this is pretty easy to do by just
turning off that auto-invest feature and doing the reinvesting yourself. Now I want to get to how dividend reinvestment
is taxed but I’ll leave a link to M1 Finance in the description below the video so you
can check it out. Taxes on the dividends you receive can be
confusing. First of all, you owe taxes on any dividends
you collect each year. This is whether you reinvest those dividends
or not. If you receive $50 in dividends and reinvest
them, you’ll just need to pay the taxes out of pocket come April. Now HOW dividends are taxed and the rate you
pay is the confusing part. Any dividends you receive are going to marked
as qualified or non-qualified on the tax form you receive from your broker. Qualified dividends are those you receive
on stocks you’ve held for more than 60 days during the 121-day period that begins 60-days
before the ex-dividend date. Now the numbers can be confusing but this
is important because it determines the tax rate you pay. Remember, the ex-dividend date is the first
day the stock trades without the dividend, so you have to own the shares before that
day to get the payment anyway. The IRS says that to get the preferred tax
rate on the dividends, you have to own the shares for at least 60 days around this day,
and it can be some before, some after, any 60 days around the date. Any dividends you receive on a stock you don’t
own for at least that 60-day period are marked as non-qualified dividends or sometimes just
called ordinary dividends. This is important because qualified dividends
are taxed under your capital gains rate, which lower than your income tax rate. On the other hand, those ordinary or non-qualified
dividends are taxed as ordinary income. You see the difference here in the federal
tax brackets for single and joint filers. So those qualified dividends are taxed as
capital gains and if you make less than $39,375 and file separately, you don’t pay any taxes
on these gains. This leaves a big question mark in your dividend
investing strategy because if you’re not a buy-and-hold investor and you’re selling
those dividend stocks in less than 60-days, you could be on the hook for a bigger tax
bill. Let’s just look at a couple of examples
here because I want you to understand this and what it means for your investments. Let’s say you file taxes with your spouse
and make $70,000 a year. So we’re looking at the second row under
2019 Joint Filer Tax Brackets. If you own a dividend stock for less than
60 days and collect that payment, you’re going to owe 12% in taxes. If you held the stock for that 60-day period
for it to be a qualified dividend, you owe nothing. One more example, if you file your taxes individually
and make $80,000 a year. If you own a dividend stock for less than
the 60-days and collect the dividend, you’ll pay a 22% tax rate on that payment. If you hold the shares long enough though,
your tax rate falls to 15% on those dividends. Important stuff here. Your online broker is going to send you a
1099-DIV form with how much in dividends you collected, both as qualified and non-qualified
dividends. That’s what you’ll report on your taxes
and the difference here could mean thousands of dollars. Now I want to get to those two strategies
for dividend reinvestment. We’ll talk about how much to reinvest and
how to determine where to put your money. Our first strategy is going to be following
the calendar dividend strategy and this is something we talked about in a previous video
but I like to sweeten it with something I call the calendar growth strategy. If you remember the dividend calendar strategy,
basically you’re looking online for stocks with an ex-dividend date coming up. As long as you buy the shares before that
ex-dividend date, you get the dividend. Why I call this the calendar growth strategy
is you can sell those shares anytime on or after the ex-dividend date and reinvest in
another stock. You take all the money from the sale of that
stock, plus the dividend you collected and reinvest it into another stock with a dividend
payment coming up. You keep doing this, reinvesting your profits
into the next stock, and watch your money grow! The next strategy is going to be looking for
companies that offer a discount on their dividend reinvestment plans. There’s currently only two of these; Aqua
America, ticker WTR and Franco-Nevada, ticker FNV. But these companies will give you a discount
on the share price to invest directly in the company and reinvest dividends. For example, you get a 5% discount on the
share price when you invest in Aqua America through it’s direct stock program and the
shares pay a 2.4% yield. Even if the share price goes nowhere for the
year, you’ve still made a 7.7% return on that discount and the dividend! Click on the video to the right for five dividend
stocks that will never let you down. Five stocks with proven cash flows in good
times and in bad that will guarantee you that dividend payment. Don’t forget to join the Let’s Talk Money
community by tapping the subscribe button and clicking the bell notification.

About Ralph Robinson

Read All Posts By Ralph Robinson

57 thoughts on “How Dividend Reinvestment can 5X Your Returns [Must-See Strategies]

  1. Great video Joseph! I’m using a different method to 5x my money. I invested it $1.6 million in Tesla for earnings and posted a video about it. I really believe tesla will outperform any other company. Let me know what you think Joseph!

  2. Ready to Invest? See how I got over $2,000 in free stock and bonus cash last year! 💰 https://youtu.be/5Tx0Ztrm0IY

  3. Every time i watch u to me u are "DOCTOR' finance ur knowledge is very excellent i do always smash the like buttons quick questions 1 can i use ROBO advisor like M1 do u use this for dividend investing 2 Bitcoin keeps going up i feel like i missed the opportunities very speculative your opinion on bitcoin investment 3 i did watch ur crowdfunding video did u cover about NON accredited investors for PRE IPO? always much appreciated for ur contents Mahalo from Hawaii

  4. How does the direct stock program work? Can we get the benefits on stock like AcquaAmerica by purchasing on regular platforms?

  5. I like that calendar strategy… With that said, what are some good stocks to look at buying this week? I'm looking for new stock opportunities

  6. Great video Joseph! I’m 18 an have abt $500 in a few qualified dividend stocks.since I make under $39,000. I don’t gotta pay?

  7. All my dividends buy Berkshire Hathaway. The €’s are in my account until Dec, then I buy as much as I can which has been 2 or 3 shares historically 😆

  8. Thanks for sharing these strategies. Great point about auto-reinvesting in expensive stocks. I accumulate my divs, identify undervalued companies, and use technical momentum indicators to target a buy price. My ETFs are on M1 Finance and use its dynamic rebalancing function to reinvest divs and new money. Noticed that your IRA had a lot of REITs. I assume it's to "protect" those non-qualified divs. In a future video, it might be helpful to clarify how MLP distributions are not like dividends from other companies and why advisors recommend against putting them in IRAs.

  9. I reinvest my dividends automatically via Fidelity back into the company that paid them. I do it within my Roth IRA so I don't plan on needing this money for another 25+ years. So let the compound interest fly.

  10. Thank you so much for this info sir. The timing for this video is awesome. This is exactly what i was looking for. You da man

  11. Your the only person that gets a thumbs up before I watch the video. I wish I had your knowledge. Thank you for sharing it.

  12. I take those dividends and invest them into dividend stocks on discount or buy a new dividend stock I've been watching so long it is good value.

  13. 5:25 SEP IRA = Simplified Employee Pension Individual Retirement Account. You don’t have to be self-employed to have one. The “SE” in SEP IRA, contrary to popular belief, does not stand for “Self-Employed.”

  14. %100 dividend reinvest in the same stock that produced the dividend. If I'm not willing to buy more of the stock, then I shouldn't hold any of it! Well… reinvest %90ish because my platform only buys whole shares, so theres usually a little dribble of cash, which is perfectly alright with me.

  15. 11:00 You should have mentioned that on the ex-dividend date, a stock opens lower by the future dividend payment, so if you sell then, as you recommended, without allowing the stock price to recover (which could take many days or weeks), you have a net-zero gain with this dividend-capture strategy.

  16. 7:55 You should have mentioned that REITs, MLPs, and BDCs pay out nonqualified (ordinary) dividends, no matter how long you hold on to them, thus they are subject to a much higher tax rate.

  17. My plan.

    I use both M1 and Robinhood. For M1, i have two pies. First pie is a bond heavy core-satellite with 5 ETFs and a few regular stocks in 6 sectors. The bulk of my investment is in this pie, about 75%

    The second pie is my monthly dividend pie. 10 stocks @ 10% each. 5 known and stable producers like "Realty Income" and a few others with a stable activity over 5 years. My monthly pie is Real estate heavy, 20% goes into this pie.

    My Robinhood account is quarterly dividend "Kings". Only a couple though like Altria, KO, etc. The plan is to get atleast one older aristocrat in each sector and an ETF for every quarter just to round it off. Itll be a boring portfolio and not full of sexy stocks, and thats the plan. Fly low under the radar.

  18. Great video. Do you have a certain dollar amount that you invest each time under the calendar strategy? Also, it seems to me that there's a certain amount of risk to buying any stock, especially in the current market, so how do you decide which to buy and how much, in order to make it worth the risk and come out ahead after selling once you've earned the dividend? Thanks!

  19. If a Dividend stock is overpriced, I would take the cash and purchase a valued dividend stock. BTW, I see Corporal stripes, Police or Military ? Low ready ! Thanks for serving.

  20. I let M1 finance automatically drip to my under allocated stocks, which is great! I don’t have to think about it, it keeps my portfolio balanced, and I’m typically dripping on a good value buy.🔥🔥 Oooh you just mentioned M1, I bet you’re getting to it! Lol yep! I should’ve listened before starting to comment! 🤣😂🤣👏🏻👍🏻👍🏻📈

  21. Hey there Bro! This is a HOT ex-dividend Feb 3 So you must buy Friday NLOK $27.68 a share! They are paying $12 a share!
    I almost feel like you made this video for me. I reinvest myself to the dividend snatch and grab daily if I can however today I got up to late, and it down a little to much to pull out.

  22. What other strategies do you use to keep your tax liability low? I have heard of starting an LLC and a holding corporation. Do you have any more tax videos?

  23. I had no idea about direct share investments from the companies’ websites. Always learn something from you. 🙌🏻

  24. HI JOseph.
    Love your channel. Watch and like all your vids.
    IM a noob investor. been in the market for about 10 months now. I make about 30K a year. Trying to get $500 per month into my Stock portfolio.
    Mostly Im a value investor, I guess. (Whatever that means. Im not sure.)
    I like to buy "Good", "reliable", companys with a 3 years and beyond holding period.
    Of course, as a noob, Ive already made many stupid mistakes. However, I have narrowed my focus to primarily dividend stocks, with a decent mix of both growth, and (big/little growth/ large dividend paying/ etc ) companys.
    I reinvest my dividends into whatever stock seems cheep and good at the time/whatever I am buying. Whatever the value is, in my opinion, I buy

  25. I just started playing around with stocks, and maybe someone can answer this for me. Are securities another name for stocks? through searching it appears so. (Background is that i was asked to pick one of two options cash or securities for a stock.)

  26. Hey Joe I talked with my company's investment advisor from Edward Jones and he said that with a 401k the forced withdrawal is as of 12-30-2019 is 72 no longer 70 and a half. He said that with a Roth that there is no forced withdrawal and most keep adding to until they die and pass it on to their kids. He said that I can only claim contributions to a 401k or an IRA but not both. He recommends JESTX with a 17.08 return over the last ten years, then PGOYX with a return of 15.59 over the last ten years, and PRUFX with a return of 15.11 over the last ten. Your thoughts please.

  27. With my M1 IRA it's set up to reinvest all the dividends into the pie. For my Roth with Fidelity I'm going for the DIRP method until I have enough shares to where I can use the dividends to buy other stock.

  28. Maybe some one can answer this I'm confused on how dividends pay out. when a dividend rate is say 3% and the stock pays out 4 times a year, is the payout 3% per pay out or is the 3% a yearly total that's divided by the 4 yearly pay outs?

  29. I use my dividends towards my next purchase of any dividend stock in my portfolio that I deem of good value, not necessarily the company I got the dividend from. My buying philosophy is that I only use my money and dividends towards good companies that are currently being sold on the stock market at a bargain price.

  30. Love all your videos. Keep them come. Playing catch up on them.

    But what do I do?
    I use the dividend payout from this month to help push up the dividend payers of the next month. Doing the I jumped from $6.00 a month to on average $20 a month. While depositing $200 every two weeks and using the dividends.

  31. Thanks for the info, even in lack in English I try to understand as much as I can , so is better dividend stocks or long term investment

  32. I use a DRIP directly back into the company. Then I invest other money on top of that in stocks that I feel are a better investment at the time.

  33. Would it be wise to utilize the growth strategy drawn out over 12 months to avoid the short term capital gains tax? Essentially: steadily invest in year 1, spreading out over multiple stocks. Year 2, steadily sell and reinvest. Results in long term capital gains tax rate, as well as some dividends becoming qualified while you wait to sell. Is this sound thinking?

  34. I wish M1 Finance was available in Canada. Maybe one day. So when I get my dividends all always reinvest to increase my income or cash flow. Also I always buy what is on sale on my list. Lost of people buy high and sell low. Yes, this is crazy! Just like selling a one hundred bill for pennies. Or buying high and selling higher. Wow!

Leave a Reply

Your email address will not be published. Required fields are marked *