Exploring Your Dividend Reinvestment Plan Options

When it comes to a dividend reinvestment plan, there are a few different options that you will have. Many investors love dividend reinvestment plans because of the benefits that they provide. One of the options that you will have is to not reinvest your dividends. With this option, you are going to be paid your dividends in cash. When you use this option, you usually rely on your dividends for passive income. Many investors utilize this plan by purchasing multiple dividend stocks. In this way, they can receive several different dividend payments and create a substantial income or augment their current retirement situation.

Partial Reinvestment

Another option that you will have is a partial reinvestment plan. With this option, you will keep some of the dividend in cash, and then put some of the remaining dividend back into purchasing stock in the company. This option utilizes a hybrid of two different strategies. You are going to be able to accumulate some more stock in the company and at the same time, you will be able to create income for yourself. This is for those individuals that want to take advantage of both strategies at the same time. You will not be able to create as much income, but you will also be able to benefit from owning more stock in the company.

Full Reinvestment

The last option that you will be able to choose from is a full reinvestment plan. With a full reinvestment plan, you are going to take the entire amount of dividends that you receive, and put them back into purchasing stock in the company. When you do this, you are building your savings for the future. Your dividend payment is based on the amount of shares that you own in the company. Therefore, the more shares that you buy, the bigger your dividend payment is going to be every time one is issued.

Since your dividend payment is increasing, this also means that you are going to be able to buy more shares. Before long, you can have a sizable portfolio built up. This is one of the quickest ways to build wealth. When you engage in a dividend reinvestment plan directly with the company that issues the stock, you will be able to avoid paying commissions to a broker. You are going to be purchasing the stock directly from the company, instead of from a stock broker.

Tax Implications

Regardless of the plan you use, you want to be aware of the tax implications. With regular dividends, you are going to have to pay taxes on them at your marginal tax rate. This means that you need to save a portion of the money that you receive to pay your taxes. If you do a full reinvestment, you will have to pay the taxes with money from other sources.

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