Why I Reinvest My Dividends

By: GenXinvestor

reinvest dividendsJuly was a phenomenal month for dividend income so I thought I’d write a post on why I reinvest my dividends.  Reinvesting dividends is, along with capital contributions and dividend raises, one of the 3 major components that make dividend growth investing such a powerful investment strategy.

I always have a tendency to reinvest my dividends to buy more shares so I thought it would be interesting to look at what all that reinvested income bought me.

As a matter of habit, I reinvest all of my dividends into the same companies that pay them.  My reason for doing so is that I want to build up long term positions in great dividend paying companies.  I’m not too concerned about the price I pay because the amount of money reinvested is small.

There are several advantages to reinvesting dividends.  First is that, by reinvesting, I don’t have idle cash sitting around doing nothing for me.  I prefer to have my money work for me.  Reinvesting my dividend income, therefore, lets me harness the power of compounding.

I like to keep my investing as simple as possible so I prefer to have my investments run on auto-pilot.  By reinvesting my dividends I don’t need to  actively manage any of my holdings.  I keep buying additional shares and continue to build long term positions in great companies.  

Finally, one of my favourite advantages to reinvesting dividends is that I don’t have to pay any commissions.  That’s right, when you reinvest your dividends, you get additional shares at no extra cost!  I have a trading account with TD Waterhouse so every time I buy and sell it costs me $9.99 in commissions.  By reinvesting my dividends I can scoop up a couple shares each quarter for free.

My total July dividend income was $1,032.  Here is the rough breakdown of what that dividend income purchased:

Bank of Nova Scotia = 6.29 shares for an extra $17.11/year

Toronto Dominion Bank = 5 shares for an extra $10.20/year

KP Tissue = 6 shares for an extra $4.32/year

BCE = 0.493 shares for an extra $1.28/year

TransCanada Corp = 0.239248 shares for an extra $0.50/year

Canadian Imperial Bank of Commerce = 0.259 shares for an extra $1.13/year

TransAlta = 0.319 shares for an extra $0.23/year

CPD = 4 shares for an extra $2.98/year

XRE = 2 shares for an extra $1.60/year

Overall, by simply reinvesting my dividend income I’ve increased my annual dividend income by $39.35, for an average yield of about 4%.  This is how compounding works and this is how to get your money working in place of you to earn even more money.

What about you?  Do you reinvest your dividends?

Photo by graur codrin/FreeDigitalPhotos.net

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