Saturday, July 20, 2013

DRIP vs Cash Dividends

For all the dividend investors out there do you DRIP (dividend reinvestment plans) or take the cash and use it as you see fit?  As a relatively young person I tend to DRIP everything and accumulate more shares in stable companies.  As I receive many different monthly and quarterly dividends it compounds nicely by adding more shares. As long as the dividend stays constant or is raised the next month or quarter depending on payment frequency I will then receive more income from each investment.

Market data suggests that dividend stocks are much more stable and consist of the majority of gains in the stock market's history.  I have heard how things can become overvalued and why people prefer to use the cash for more undervalued stocks and respect that philosophy as well.  Unless you are living off the income and retired it seems that reinvesting into the market one way or another is the best option for building more wealth.

What do you think is the best strategy?  Do you DRIP, take the cash and run, or a combination of both?


  1. As long as the cash is reinvested, I don't think it really matters too much one way or the other. Personally, I prefer to take it as cash. But... I do turn on the DRIP for certain holdings from time to time.

    High yield stocks can become overweight pretty quick with automatic reinvestments (not necessarily bad). Something to consider.

  2. CI,

    Thanks for the feedback! I have pretty much 100% of it in DRIP if available only because it is free and increases my shares/dividends in the future as long as company can sustain it long term. I don't get huge amounts at a time and don't wait to pool it all together for another purchase. It works either way, but I figure if I can add to holdings regularly without paying tons of commissions it is worth it.

    Good point! Some high yielders can be great to be overweight in, but staying diversified and having income spread around many different investments is preferable. That way if one drops a lot and has unsustainable payouts you can lessen the blow to your overall income.

    Hope you are having a good August so far!