Dividend reinvestment program
People usually make their investments to earn heavy dividends. The amount earned in the form of dividends can be utilized to meet emergency needs or used for purchasing specific articles. In most of the cases, people dont prefer cash dividends but opt for dividend re-investment plans.
The important concept of investment multiplication is achieved through re-investment. Investors are subjected to tax implication for both the methods either cash payment or re-investment. In some of the locations, it is made mandatory for companies to deduct the tax amount prior to distribution and investors are relieved from tax payment. Therefore investors turn out to be happy when they receive tax free dividends.
The very important benefit investor gets is within no time his re-investment amount starts appreciating without any routine charges on account of brokerage. The investor need not have to wait till the entire stock amount is accumulated. The dividend re-investment plan allows investor to purchase fractional shares. Over a period of time, investor is benefited with the creation of wealth. Investors can find few re-investment plans free of charge for existing members, while others do charge fees and service charges in proportion to the investment. Dividend re-investments gained lot of popularity among the investors because they get the benefit of dollar cost averaging. The dual advantage here is that the investor is guaranteed for the dividend yield, plus the benefit of increased stock value during his time of ownership. The investors may also note that stock prices move up and down depending on the market conditions.
Experts advise the investors to maintain records of their investment details. Investors may have number of stocks to their account which are purchased at various prices. The record can be prepared in a paper or electronic form. This information can be used to calculate the capital gain tax when any shares are sold. This data sometimes is required to be submitted to the Revenue Service Department. The record keeping if delegated to the outside agency can prove to be a costly affair. The investor can imagine the content of large records by considering the example given here. Suppose investor has more than ten dividend re-investment plans running for more than ten years and each company pays quarterly dividends. This may result into hundreds of records and the investor may not be in a position to maintain them properly. The record can become more difficult, depending upon the investors transactions of buying and selling of stocks. Sometimes the company itself initiates the action of merger with another company or diverts some of their existing business activity to form another subsidiary.
Most of the times the dividend re-investment plan is managed by the company itself; however investors can do this activity through some of the brokers without any charges. Investors can find many dividend re-investment plans as a part of direct stock purchase plan. To acquire the shares the investor needs to permit the company for an automatic debit from his saving account with the bank. Investor can decide the frequency and quantity. The frequency can be on a quarterly basis. Dividend re-investment plans are available with different category. The investor can select the option of getting a part of dividend through cash payment and balance as a contribution to the re-investment plan.
Other Articles
