Author Topic: DRIP vs Cash Payout  (Read 3994 times)

tkc

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DRIP vs Cash Payout
« on: January 25, 2016, 07:46:52 PM »
I am constantly going back and forth on automatic reinvestment of dividends and taking the cash and invest yourself later when it comes to dividend stocks. The way I understand it

1. DRIP helps you in avoiding commissions.
2. DRIP will cause problem when you finally decide to sell because of multiple cost basis.
3. DRIP helps in compounding.
4. DRIP is not good for diversification as you can collect all the cash and buy a different stock.

I want to know what people in this forum do. Do you prefer one over the other? If so, why?

whodidntante

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Re: DRIP vs Cash Payout
« Reply #1 on: January 25, 2016, 08:25:42 PM »
I am constantly going back and forth on automatic reinvestment of dividends and taking the cash and invest yourself later when it comes to dividend stocks. The way I understand it

1. DRIP helps you in avoiding commissions.
2. DRIP will cause problem when you finally decide to sell because of multiple cost basis.
3. DRIP helps in compounding.
4. DRIP is not good for diversification as you can collect all the cash and buy a different stock.

I want to know what people in this forum do. Do you prefer one over the other? If so, why?

I don't DRIP in taxable accounts mainly due to #2.  I DRIP in retirement accounts. 

mxt0133

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Re: DRIP vs Cash Payout
« Reply #2 on: January 25, 2016, 08:47:03 PM »
I was just thinking about this exact thing.  I remember a CPA friend mention this about clients who do DRIP on how much of a pain it was to calculate cost basis when you have so many transactions.  I was then going to change my Vanguard funds on how distributions are handled to pay out to my bank account.  However, I already buy on a monthly basis on my taxable accounts, so no matter what I will have a dozen or so transactions a year that will complicate calculating cost basis what's another 2-3 a year.

Heckler

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Re: DRIP vs Cash Payout
« Reply #3 on: January 26, 2016, 12:26:18 AM »
I have only tax deferred/free accounts, and pay $9.95/ trade.  DRIP is my best friend!

mrpercentage

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Re: DRIP vs Cash Payout
« Reply #4 on: January 26, 2016, 12:53:47 AM »
When in doubt cash out. You are getting taxed for dividends either way. Adjust your monthly auto purchase to reflect the added dividend instead. (for direct stock purchase monthly investment plans) You will only have to do this 4 times a year. Sure you can save more by keeping a headache of extensive records that kills the buzz of investing and makes it a chore-- but I don't sweat the small stuff.

Me I just DRIP for now.

BDWW

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Re: DRIP vs Cash Payout
« Reply #5 on: January 26, 2016, 01:07:33 AM »
I am constantly going back and forth on automatic reinvestment of dividends and taking the cash and invest yourself later when it comes to dividend stocks. The way I understand it

1. DRIP helps you in avoiding commissions.
2. DRIP will cause problem when you finally decide to sell because of multiple cost basis.
3. DRIP helps in compounding.
4. DRIP is not good for diversification as you can collect all the cash and buy a different stock.

I want to know what people in this forum do. Do you prefer one over the other? If so, why?

I don't DRIP in taxable accounts mainly due to #2.  I DRIP in retirement accounts.

It's not really that big of deal. You get a report from your brokerage at the end of the year, and it has each transaction in it.
It's a bit of paperwork to log each one, but it's really not that difficult. Dollar cost averaging/buying incremental shares every month does the same thing.

faramund

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Re: DRIP vs Cash Payout
« Reply #6 on: January 26, 2016, 04:19:07 AM »
It seemed like a few years ago, quite a few companies gave discounts if you DRIPed (at least in Australia), but that seems to have largely dried up now.

So I've pretty much switched off all my DRIP shares now, as I now like to consciously allocate where my money goes, and as I invest in lots of 4000-5000 dollars, I don't really care about the purchase costs.

Manguy888

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Re: DRIP vs Cash Payout
« Reply #7 on: January 26, 2016, 05:26:54 AM »
I don't see the tax basis confusion being that big of a deal. If you set your fund to 'specID' or specific identification of shares, the selling process is pretty simple. At least with Vanguard, when you go to sell, it lays out all of your shares, what the basis is, and whether they're short or long term gains. It also tells you what kind of loss or gain you'll sell for.

All you have to do then is cherry pick which ones you want to sell and it tallies it all up at the bottom. Without that kind of technology, I definitely can see how it would be difficult though.

Retire-Canada

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Re: DRIP vs Cash Payout
« Reply #8 on: January 26, 2016, 06:30:06 AM »
I don't DRIP because I want to use those dividends to rebalance.

I don't pay to buy new shares so there is no extra cost either way.
« Last Edit: January 26, 2016, 09:09:06 AM by Retire-Canada »

GGNoob

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Re: DRIP vs Cash Payout
« Reply #9 on: January 26, 2016, 07:05:55 AM »
Other than ETFs, I only have 2 stocks which are O and NNN. I was questioning whether or not to drip with those stocks, but decided not to as I'll just continue to use the dividends to rebalance.

Vagabond76

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Re: DRIP vs Cash Payout
« Reply #10 on: January 26, 2016, 07:37:41 AM »
I have 15 investment accounts (6 education, 5 taxable, 4 retirement) with over $1M in paper assets. All DRIP except one taxable account. When I early retire, I will turn off the DRIP on the taxable accounts and live off those. If I need it later, I will turn off the DRIP on the retirement accounts.  SRIP allows me to buy ~$40,000 a year with no commissions.

As far as tracking basis, I have 5 accounts where it might matter, but I do so for all 15 accounts. Entering purchases in a computer program takes about 10 minutes a month. Of course, if you hold the assets until death and just live off of the dividends, then there is no capital gain tax.

protostache

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Re: DRIP vs Cash Payout
« Reply #11 on: January 26, 2016, 08:26:41 AM »
I have 15 investment accounts (6 education, 5 taxable, 4 retirement) with over $1M in paper assets. All DRIP except one taxable account. When I early retire, I will turn off the DRIP on the taxable accounts and live off those. If I need it later, I will turn off the DRIP on the retirement accounts.  SRIP allows me to buy ~$40,000 a year with no commissions.

As far as tracking basis, I have 5 accounts where it might matter, but I do so for all 15 accounts. Entering purchases in a computer program takes about 10 minutes a month. Of course, if you hold the assets until death and just live off of the dividends, then there is no capital gain tax.

The education and retirement accounts make sense, but why the five taxable? The only reason I can really think of is direct purchase accounts.

Vagabond76

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Re: DRIP vs Cash Payout
« Reply #12 on: January 26, 2016, 03:55:33 PM »

The education and retirement accounts make sense, but why the five taxable? The only reason I can really think of is direct purchase accounts.

What proverbial "can" I put the money in depends on when, how and why I got the money.  (1) Proceeds from sale of property (DRIP).  (2) Grandma died at left me a small inheritance; also tied to a Fidelity rewards card that must be linked to a Fidelity account (DRIP).  (3) An account that really belongs to my kids but in my name (Cash).  (4) Sign up and deposit the minimum to get a cash bonus and buy stock during introductory commission-free period (DRIP).  (5) Had extra cash laying around when I changed the payment plan of a life insurance policy to avoid blowing past the MEC limits (DRIP).