Dividends..How do you handle?

I have a question for Saul and anyone else that cares to take the time to answer. How do you handle dividends? Especially when it comes to “Saul” stocks.
In the past when really just starting to build my portfolio, I would always “auto-innvest” them. Then as I got what I considered full positions, I took them as cash, but kept in portfolio to be used for what and when I want to add.
Now, I am somewhere in between. Any positions that I want to keep growing, or am actively adding to, I auto re-invest them. Others that are either full, or on my “maybe sell or trim” list I take as cash. I think I unserstand both sides. DRIP automatically “dollar cost averages”, while cash allows for more flexibility. Does what I’m doing make any sense? Is there anything I missed? How do others here handle them and what is reasoning for handling them this way?

I am still actively adding to portfolio and still 15 to 20 years to retirement. (Unless some my companies really do well!)

I appreciate any thoughts.

Kevin

Kevin,

I don’t automatically reinvest dividends for 2 reasons.

  1. I like to decide when I buy and at what price. If dividends are automatically reinvested then I may be automatically buying at prices that I would not normally buy at.

  2. I don’t like fractional shares or odd lots. I almost always buy in round lots. This is just a personal preference, and the main reason that I don’t automatically reinvest dividends is #1 above.

Hope that helps.

Chris

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Hi Kevin,

You can just ditto exactly what Chris wrote for me, except I don’t mind odd lots:

I don’t automatically reinvest dividends for 2 reasons.

  1. I like to decide when I buy and at what price. If dividends are automatically reinvested then I may be automatically buying at prices that I would not normally buy at.

  2. I don’t like fractional shares. This is just a personal preference, and the main reason that I don’t automatically reinvest dividends is #1 above.

Actually, I just consider dividends like any other cash in the account.

Hope that helps.

Saul

I re-invest all my dividends because it’s a way to buy more stock without paying a brokerage fee. It’s also a way to get more stock without having to wait until you have enough to make it worth a brokerage fee. Lastly, I don’t have to “remember” to invest my dividends. Someone I know ignored the dividends he was getting on a stock for ten years! During the time the stock steadily declined only to rebound these last two years to a new all time high. Imagine if he had re-invested the dividends how much better off he would be.

lovepeace

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Imagine if he had re-invested the dividends how much better off he would be.

Whether or not he would have been better off depends on what he did with the dividends he got. He could have invested them in some other stock which actually did much better.

In my brokerage you can turn off auto-reinvest pretty easily (Schwab).

My thought then is that you should auto-reinvest in your highest conviction picks until they hit levels where they are no longer your highest conviction picks. Then you can turn them off and use those dividends to buy some shares in what are now your highest conviction stocks.

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Hi Kevin,
I have been a huge fan of DRIPS, Got my first issue of the “Money Paper” 18yrs ago and set my accounts thu them, I currently have 6 positions to which I send "X’ amount religiously, I am a big fan of the dollar cost averaging and a mix of some steady 5 to 7% paying stocks and 2 more risky securities paying in the high teens. why take the cash if you don’t need it? If your unhappy with a position why not just close it out and put the money to work somewhere else ? ( I just closed my position in Sotherbys after 10yrs, just think there are better opportunities out there( of course be mindful of tax implications
I also look for securities that have room for growth
MAT is a perfect example
Just my opinion

Sounds like you have a solid grasp on it

Best of Luck
Chas

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Hi Kevin,

For me, I don’t treat dividends special, they are not that big of a deal and whether you reinvest or take the cash to invest later, it’s OK either way.

I reinvest because I am building up my port and I don’t mind fractional shares. My port is not HUGE, so the dividends aren’t pumping out huge sums to re-allocate. If you like pretty round numbers in your stock holdings list, take them as cash. My broker auto-handles the fractional shares if I sell so there are no extra fees or hassle.

It’s really OK no matter what. Happy investing!

Karen