Wow, we are getting to the end in series of posts titled, The Dividend Guy Investment Process. Today’s post is going to talk about something that I am very passionate about – reinvesting dividends!
When an investor receives dividends from a dividend stock, they have two choices. The first is to take the dividends as cash and accumulate them in a brokerage account as cash to be withdrawn at a later date. The second option is to immediately take those dividend payments and use them to purchase more stocks, either in the same company or into another company. My choice is to take the dividend payments and accumulate them and buy the asset that is most out of balance within my target asset allocation.
My rationale for reinvesting my dividends is best described in an article I came across on the AIC website (pdf). The image below explains it all – from 1982 the TSX index returned 863% without reinvesting dividends and 1,705% with dividends reinvested. That equates to a lot of additional value created because of the reinvestment of dividends.
The next post in the series will be the last and will show my portfolio makeup and review I do on a monthly basis.