Reinvest or en cash dividends

[EssDeeAitch]

Is there any particular benefit to taking dividends in cash on one hand and re-investing on the other? I do not need the income and it may be beneficial to have the cash so I can redirect to the holdings as I see fit. Any comments appreciated.

[jackdaww]

i leave the dividend cash in the account to accumulate for reinvestment later.

[OLTB]

Reinvest, reinvest, reinvest!

You get the power of compounding returns. A quote attributed from Einstein, "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it. Compound interest is the most powerful force in the universe."

When you have received enough in dividends (it may take some time initially) to make a purchase worthwhile (so the purchase costs aren't too onerous), you can use the HYPTUSS tool to see what would be most appropriate to buy. I use this, but sometimes just go for the HYP constituent that is below average size and offers the highest yield.

Cheers, OLTB.

[idpickering]

Is there any particular benefit to taking dividends in cash on one hand and re-investing on the other? I do not need the income and it may be beneficial to have the cash so I can redirect to the holdings as I see fit. Any comments appreciated.

I have my dividends held in the cash element of my Halifax Stocks & Shares ISA, let them build up, and once a month invest the lot in my chosen pick. I have been doing this for years, and it works. With only one investment each month, the fees are only £2 plus stamp duty. So I'm compounding my returns by reinvesting my dividends, and getting a bit of pound cost averaging thrown in too.

Ian.

[Alaric]

I have my dividends held in the cash element of my Halifax Stocks & Shares ISA, let them build up, and once a month invest the lot in my chosen pick.

The alternative is to use the dividend reinvestment plan (DRIP) which many companies offer. You end up with more shares in the Companies paying the highest dividends. You may not want this of course.

[EssDeeAitch]

Apologies, I asked the question in a very clumsy way. I meant to ask "reinvest in the stock from which the dividend has been paid" or take as cash for investment in the stock (or whatever) of choice.

From the replies so far, it seems that take the dividends as cash and use to top up/buy shares as appropriate.

[idpickering]

Apologies, I asked the question in a very clumsy way. I meant to ask "reinvest in the stock from which the dividend has been paid" or take as cash for investment in the stock (or whatever) of choice.

From the replies so far, it seems that take the dividends as cash and use to top up/buy shares as appropriate.

I like the idea of choosing where my dividends are invested, and not necessarily back into the share that provided that dividend. As Alaric mentioned above, some companies offer a DRIP scheme should you want to just buy more shares in that company. I'm famed hereabouts for my dithering and Pickering as to what to buy each month. I don't mind because the great feedback the gang provide is very helpful.

Ian.

[kempiejon]

Apologies, I asked the question in a very clumsy way. I meant to ask "reinvest in the stock from which the dividend has been paid" or take as cash for investment in the stock (or whatever) of choice.

From the replies so far, it seems that take the dividends as cash and use to top up/buy shares as appropriate.

I would only re-invest in the shares paying the dividends if they were the best pick at the time. That's not unheard of but not a rule.

[staffordian]

Apologies, I asked the question in a very clumsy way. I meant to ask "reinvest in the stock from which the dividend has been paid" or take as cash for investment in the stock (or whatever) of choice.

From the replies so far, it seems that take the dividends as cash and use to top up/buy shares as appropriate.

Definitely this. It makes far more sense for you to fully control where all future investments are made.

If you are also adding new money then doing this has no cost (apart from the 0.5% stamp duty payable on most purchases) because you are simply investing a little more per transaction than would otherwise be the case.

[OLTB]

Apologies, I asked the question in a very clumsy way. I meant to ask "reinvest in the stock from which the dividend has been paid" or take as cash for investment in the stock (or whatever) of choice.

From the replies so far, it seems that take the dividends as cash and use to top up/buy shares as appropriate.

I like the idea of choosing where my dividends are invested, and not necessarily back into the share that provided that dividend. As Alaric mentioned above, some companies offer a DRIP scheme should you want to just buy more shares in that company. I'm famed hereabouts for my dithering and Pickering as to what to buy each month. I don't mind because the great feedback the gang provide is very helpful.

Ian.

What Ian said - you choose where you want to reinvest your dividends.

Cheers, OLTB.

[IanTHughes]

Apologies, I asked the question in a very clumsy way. I meant to ask "reinvest in the stock from which the dividend has been paid" or take as cash for investment in the stock (or whatever) of choice.

I allow dividends to accumulate until there is sufficient to make an economic purchase in the best share available at the time. My broker offers me a monthly "Regular Investment Service" for the reduced commission of £1.50. I have decided that the commission on any one purchase should not exceed the Stamp Duty. This means I arrange each regular purchase to be at least £300 in value.

It works for me


Ian

[EssDeeAitch]

Thanks everyone, helpful as ever. I have changed the settings now for "hold as cash" and I will re-invest as appropriate.

[Itsallaguess]

I meant to ask "reinvest in the stock from which the dividend has been paid" or take as cash for investment in the stock (or whatever) of choice.

From the replies so far, it seems that take the dividends as cash and use to top up/buy shares as appropriate.

Allowing dividends to accumulate as cash in the account in which they are generated gives you a couple of good 'portfolio management' opportunities that may be lost were you to simply DRIP them back into their 'parent' investment -

1. You get the chance to perhaps 'sweat' the dividend-capital by investing in something that yields more than the 'parent' company, thus generating more income than you might otherwise have done so.

2. You get the chance to perhaps carry out some 'in-flight balancing' of your portfolio, to maybe even-out some underweight holdings. Doing so might then bring the whole portfolio into a more even 'spread' of investments, rather than allowing things to get 'bulky' in capital terms.

There's also the added danger if you were to simply set up a load of DRIP plans, that you end up with really quite 'lumpy' capital allocations in your portfolio. Depending on the yields of such DRIP plans, this might not take long to materialise, so I'd always urge caution in this area, and try to take full control of capital-allocation yourself where accumulated dividends are concerned.

The next question usually asked when this topic has come up in the past, as it regularly does, is to work out what an economic sum of dividends might be, before re-investment is sensible.

You'll get lots of answers to that, but a very popular response in the past has seemed to suggest that ensuring that all dealing costs are kept to a minimum is one of the most important aspects of this area of portfolio-management, and a 1% dealing cost is quite often touched upon.

Taking a notional £20 dealing cost involved with a new purchase, then if that was 1% it would indicate an accumulate-dividend pot of around £2000 (£2000 x 0.01 = £20).

Some brokers allow cheap-dealing transactions, where costs can come down to around £12, which might then allow accumulated dividends of around £1200 to be economical in terms of trading costs (£1200 x 0.01 = £12).

What you really want to avoid if you can, with this type of 'accumulated dividends' trade, is to spend a good chunk of the upcoming yield on this new capital in trading costs - spending £20 to get £500 invested will be 4% lost initially on the cost of the trade, which means that the first 12-months of dividends might be needed to then recoup that 4%. Keeping those costs down often means that any new dividend-reinvestment like this can be 'paying for itself' much sooner, which is something you should try to aim for, no matter how tempting it is to get smaller amounts reinvested.

I'd always try to keep my trading costs around the 1% area or less personally, but hopefully the above examples give you something to play with in terms of your own broker costs, but do investigate the cheap-dealing options, which are often called 'Regular Investments'. Don't be put off the title though, as these types of transactions can be set up whilst the trade goes through, where you can then simply turn the 'Regular Investment' off, until the next time you want to use it. This is a little cheat that we like to keep quiet around here, mind, so don't go telling anyone outside of this room...

One word of warning though - if you do start to use the cheap 'Regular Investment' options with your broker(s), then do set up a system of reminders to tell you when the trade should have gone through, so you can check it's been transacted and you can then turn it off. I'm sure there will be a few of us here that have forgotten to do this in the past, and ended up carrying out extra, unintentional monthly trades in shares they really meant to turn off had they remembered!!!

Cheers,

Itsallaguess

[EssDeeAitch]

I meant to ask "reinvest in the stock from which the dividend has been paid" or take as cash for investment in the stock (or whatever) of choice.

From the replies so far, it seems that take the dividends as cash and use to top up/buy shares as appropriate.

Allowing dividends to accumulate as cash in the account in which they are generated gives you a couple of good 'portfolio management' opportunities that may be lost were you to simply DRIP them back into their 'parent' investment etc, .................................................

Itsallaguess

Many thanks for this comprehensive reply, your help is much appreciated as it is for all who take the trouble to share their knowledge.

[miner1000]

Excellent response Itsallaguess. I would add that for those (like me) who are in the drawdown stage, one also has to ensure one has the emergency fund of cash at the required balance to ride out any market storms (current situation anyone?). Any spare dividend cash over and above this requirement is invested as soon as the amount is large enough to avoid excessive dealing fees.
Miner

[Pendrainllwyn]

Yes, good response from Itsallaguess.

A couple of additional points. Firstly, as far as I can tell my broker charges commission on stock dividends for some companies but not others so where they don't that helps tilt the balance in taking the stock dividend rather than cash and reinvesting. (I don't want to ask why in case they realize they are not charging when perhaps they should!). Secondly, I own one company (not a UK listing) that includes a 5% discount when computing the stock dividend reinvestment price which tilts the balance further so it might be worth checking whether a discount is on offer too. I suspect this is uncommon.

Personally I am not that price sensitive on dividend reinvestments given their size and I don't care too much about its impact on the balance of my portfolio as it is far from balanced already. Psychologically I like building a position so I usually take the stock dividend. I tend not to when I think the stock is getting close to a sale price.

Pendrainllwyn

[DiamondEcho]

I leave cash to accumlate for a while, as I only trade occasionally and [hence?] do it in reasonably large chunks. I then run the latest metrics on all my current holdings, consider any additions - though that happens quite rarely - and wait until the market is under a periodic relatively black cloud. These weeks seem to come most quarters. Rather like now as it happens!

I then as a FTSE-350 investor look for either a general and possible macro medium-term change in mood; perhaps today, when despite it being 'risk-off Friday' all 3 major US indices closed 1%+>2%+ on the day. Ie. I don't reinvest immediately I have the funds I wait a while often a few weeks, possibly a month or two until I feel genuine gloom but start to see what I perceive as a possible turning point.

I don't trade bits and pieces so this works for me, watching and waiting until I see an 'illogical/emotional value' on offer'. It does tend to still feel like something like a leap into the dark so perhaps needs a bit of nerve or 'invest and forget', but IME is better than buying in when everything feels rosy.

Moderator Message:
The strategy above is not like HYP as defined in this board's guidelines. For further discussion of other income strategies please post on the High Yield Shares & Strategies - general board, thanks. - Chris

[IanTHughes]

Psychologically I like building a position so I usually take the stock dividend. I tend not to when I think the stock is getting close to a sale price.

How does one set a sale price within a Long Term Buy and Hold Strategy like HYP?


Ian

[Pendrainllwyn]

My apologies. I read posts via the New Posts quick link. Although I own a few HYP qualifying equities I don't run a HYP. I don't pay much attention to which board posts are from so I am afraid I have ventured unintentionally.

Pendrainllwyn

Moderator Message:
Please take the time to check a board's guidelines before posting - especially if posting on a board for the first time or if unsure of where the post will appear. Thanks. - Chris

[tjh290633]

Psychologically I like building a position so I usually take the stock dividend. I tend not to when I think the stock is getting close to a sale price.

How does one set a sale price within a Long Term Buy and Hold Strategy like HYP?


Ian

I have three criteria. One is when the holding breaches my self imposed value level. If topping up would do so, then I abstain.

The second is if the share of cost exceeds my limit after topping up, then I would not top up.

The final criterion is if the share of dividend income would exceed my limit, then I would not top up.

The limits are roughly 1.5 times the median value for the parameter.

TJH