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The Spectrum . Redwood City's Monthly Magazine
Expand Your Stock Ownership... DRIP by DRIP
By David Amman
Special to the Spectrum
At one time or another, you probably wished you could increase your investments
– if only you had the money. And it’s certainly true that investing
can be expensive. However, you might be able to get “more bang for your
buck” – and, over time, significantly increase your holdings – by buying shares of
dividend paying stocks and reinvesting the dividends into the same stocks.
To follow this strategy, of course, you have to find stocks that regularly pay dividends.
Fortunately, by doing a little research, you can indeed locate companies
that have long histories of not only paying, but also increasing, their dividends.
(Keep in mind, though, that stocks are not fixed-income vehicles, and dividends
can be increased, decreased or totally eliminated at any point without notice, no
matter how good their track record has been.)
If you are interested in reinvesting dividends, you might want to look for companies
that offer automatic dividend reinvestment plans, also known as DRIPs.
Typically, you won’t have to pay a fee for a DRIP plan – in fact, if a fee is required,
you might want to look elsewhere. And you don’t have to receive enormous dividends
to participate, either; many DRIPs allow you to send in as little as $10 to
$50 at a time to buy additional shares of stock.
The biggest benefit of DRIPs, of course, is the ability they give you to increase the
shares of stock you own. But you’ll find other advantages, too. Here are a couple
to consider:
BODNER CHIROPRACTIC
PROFESSIONAL CORP
SINCE 1989 IN REDWOOD CITY
SPECIALIZING IN:
WORKERS' COMPENSATION
& AUTO ACCIDENTS
SPORTS INJURIES
.
.
NECK PAIN
HEADACHES
SHOULDER PAIN
MUSCLE SPASMS
LOW BACK PAIN
LEG PAIN
NUMBNESS
ARTHRITIS
ACUPUNCTURE
HERBS
~
SE HABLA ESPANOL
LIENS ACCEPTED
Dr. Sohila Bodner
MOST INSURANCES ACCEPTED
IMMEDIATE APPOINTMENTS
368-8525
1675 BROADWAY * REDWOOD CITY
- Also in Hayward -
(510) 537-6337
21524 Foothill Blvd * Hayward
Investment discipline – To be a successful investor, you need the discipline to
continuously invest, month after month, year after year, in good markets and bad.
Many people lack this discipline and take a “time out” from investing until they
feel they can really afford it. But, as you know, we can all find other ways to spend
money, and investing often gets tossed aside for what appear to be more pressing
needs. However, by taking part in DRIPs, you will invest steadily and with virtually
no effort on your part. And since you never received the dividend checks in
the first place, you won’t really “miss” the money. Remember, though, that a systematic
investment plan does not guarantee a profit and does not protect against
loss in declining markets. It involves continuous investment in the security regardless
of the price of the security. You should continue your ability to invest through
periods of low price levels.
Tax benefits – Until the laws changed a few years ago, dividends were taxed at
your current income tax rate. Now, however, dividends are taxed at a maximum
rate of 15 percent. (This rate is set to expire at the end of 2008, barring congressional
action.) But even this new, relatively low rate can lead to a hefty tax bill for
you if you receive a great deal of dividends. Consequently, if you participate in several
DRIPs, you might want to keep some of your stocks in a tax-deferred vehicle,
such as an IRA.
DRIPs for the long run – Ideally, to use a DRIP, you want to find stocks that offer
attractive current yields and growth potential, and you want to keep adding shares
of these stocks for a long time. Fortunately, you should not find the task too hard,
because the companies that regularly increase dividends are generally high-quality
businesses that actively try to reward their investors. So, work with a financial professional
to identify these stocks, and then turn on the faucet and let the DRIPs
begin.
Editor’s note: David Amman is a Redwood City community member who contributes to
The Spectrum. If you have any questions regarding investments, please send them to writers@spectrummagazine.net
or The Spectrum Magazine, P.O. Box 862, Redwood City, CA,
94064.
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