The dividend re-investment plan is another useful tool that can generate a higher number of share holdings and incrementally increase your dividend payments. I will explain the basics of the dividend re-investment plan and its benefits.
Lets say you own 1000 shares of XYZ company and the shares presently trade at $10.00 per share. The XYZ stock pays a dividend of $0.10 per share on the 15th day every month and for easy explanation purposes the stock trades at exactly $10.00 per share for the next 4 months. You have chosen to use the dividend re-investment plan.
-Month One- You receive a dividend payout of $100.00 and it is re-invested into shares at $10.00 each. Now you hold 1010 shares.
-Month Two- You receive a dividend payout of $101.00 and it is re-invested into shares at $10.00 each. Now you hold 1020 shares and also keep the extra $1.00 in cash.
-Month Three- You receive a dividend payout of $102.00 and it is re-invested into shares at $10.00 each. Now you hold 1030 shares and also keep the extra $2.00 in cash.
-Month Four- You receive a dividend payout of $103.00 and it is re-invested into shares at $10.00 each. Now you hold 1040 shares and also keep the extra $3.00 in cash.
From this, it is clear that you are increasing your holdings of shares and dividends on a monthly basis.
I prefer to use this strategy in my RSP account and save taxes by doing so. One of the benefits by using this strategy is saving brokerage fees when purchasing the shares every month. Re-investment of dividend plans are exempt from brokerage fees. You also increase your position in the XYZ company monthly and have the possibility of the stock value increasing.
It is clear to see how dividend re-investment plans can work for you.
0 comments ↓
There are no comments yet...Kick things off by filling out the form below.
You must log in to post a comment.