Re: To reinvest dividends back into the same company or not?
I treat dividends differently based on one's portfolio. In the Young Folk Portfolio and other young folk portfolios, all dividends are reinvested back into the underlying asset, what many people refer to as DRIP.
For those nearing retirement, or already in retirement, all dividends are collected and then selectively reinvested. This of course is after the monthly distribution for those who draw on their account for living expenses.
When I reinvest selectively, it also depends on one's portfolio. If they need or want more income, I'm taking the dividends from the lower yielding companies and reinvesting them into the higher yielding companies.
If the person doesn't need any more income, then the dividends are used to buy and build more growth type assets, or to add to undervalued companies.
In all of the portfolios that are not set up on automatic reinvestment, when a holding drops 10% or more from their cost basis, I have a decision to make, sell the asset or set it up on dividend reinvestment and see if those reinvested dividends can bring it back to profitability. Once it is the green, I then take it off dividend reinvestment.
So far, these tactics seem to be working out okay for me. |
