Handled correctly, dividend payments can play a significant role in investment performance. As such, you may receive alerts from InvestorKeep when you receive them.
Dividends are payments from the company you own shares in. They are a nice reward for owning a piece of the company. Dividends are most often deposited directly into your investment account. Dividend reinvestment programs (DRIP) give shareholders the option of reinvesting the amount of the dividend into additional shares of the company. Since these shares are bought from the company itself instead of through a broker, you avoid paying fees when purchasing them.
In addition to avoiding fees another fantastic advantage of dividend reinvestment program is many companies offer shares at a 1% - 10% discount when dividends are reinvested. DRIPs also allow investors to buy fractional shares, so every dollar of your dividend is put to work.
The biggest advantage of reinvesting the dividends is the compounding impact on the returns of the stock as illustrated in the chart below:
This chart (from a Morningstar and Hartford Fund study) shows how $10,000 invested in 1960 grows through 2017 with and without a dividend reinvestment program. Talk to your financial professional about how best to use your dividends. They can be a source of extra cash flow or a powerful investment force in your portfolio.