I have touched a number of times on the reality that the dividend growth rate of a give company is, in many ways, often more important than the yield an investor will receive today for a given security.
While many investors may become enamored by a high up front yield, growing a dividend over time is the strategy employed by many long term investors who seek retirement income in a time frame of a decade or two.
With all that in mind, considering whether or not to engage in a Dividend Re-Investment Plan (DRIP) is another important choice for investors with regards to growing dividend income over time.
A DRIP will essentially re-invest the dividends one earns from an investment in shares of that company’s stock, reducing the amount of cash one will receive in the short term, with the expectation that additional shares of said company will produce larger income streams in the future.
By re-investing in an existing position and growing exposure to a dividend growing stock, a DRIP allows an investor to continue to invest over time in a low-fee or no-fee way, growing the future distributions one expects to see over time.
While income needs for investors vary, for those who do not rely on dividend income to survive, choosing a DRIP within a portfolio can be a very powerful way to build one’s retirement income potential while taking advantage of the lack of high trading fees associated with adding to one’s existing position.
Invest wisely, my friends.
