Many investors look for stocks that pay dividends, subscribing to the notion that companies that pay dividends are more established and able to share earnings with shareholders. Not every investor who wants dividend-paying stock is looking for the income and may want to re-invest the dividends. With mutual funds, re-investing dividends is as easy as telling the mutual fund company to do so. With stocks, you will need to find a company that offers a dividend reinvestment plan, also known as a DRIP. The limitations of DRIPs is contingent on the companies that offer them directly or select brokerages that facilitate these transactions.
Things You'll Need
- Internet connection
Research the companies that offer DRIPs. Not every company does, so you will need to either contact the investor relations departments of companies in which you are interested to see if they offer DRIPs. You may also use third-party research sites such as Stock Selector or DRIP Central to get a listing of participating companies.
Contact your brokerage firm or a major firm in your area if you don't find a stock you are interested in that offers a DRIP program. Some major brokerage firms such as Merrill Lynch, Paine Webber and Dean Witter offer services to allow customized DRIP programs.
Buy the stock either directly with the company, the company's transfer agent or a brokerage firm. The investor relations department of the company will guide you on the process for their own stock DRIP.
Register the stock in your name if you already own the stock in a portfolio. "Street name" is a stock accounting procedure that expedites stock transaction with stock in brokerage accounts; for you to participate in a stock, you must re-register already existing stock shares. For brokerage accounts offering DRIP plans, talk to your representative to properly title all assets and get dividends reinvested properly.
Tips & Warnings
- Even though the dividends are reinvested, you will still receive a 1099-Div for the earned dividends for tax purposes. Consult your tax adviser about filing taxes properly.
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