How do you get paid from stock dividends?

[mindaugas]

This may seem like a really simple question, but as someone with no investment account currently, I was curious how you actually get paid from the dividends. When it comes time to quit and begin living off passive income, dividends being one of those, how do you get paid? Do you have an account u write checks/debit from? Does it get deposited into your existing account? Do you have control over this so only a certain percentage or amount can be paid? I'm assuming yes, yes, and yes but asking for clarification.

[iamlindoro]

For most brokerage/investment firms, you will have the option to reinvest dividends in the stock which generated them, or have them deposited as cash in an account of your choosing.  Generally speaking your brokerage allows you both options, but not a mix of both (ie, you can't do 50% reinvest and 50% payout on a single dividend with any that I'm aware of).

[mindaugas]

Thanks, is this how vanguard works as well?

[iamlindoro]

Yes, this is how Vanguard works.  By default, they will reinvest all dividends.

[arebelspy]

You may hear the term DRIP - this means they will reinvest your dividends.  The easiest way, IMO, when you want to turn that off is to have the dividends go into your cash account at the brokerage, then withdraw it into your normal bank account.

[dragoncar]

Vanguard is special, I think.  Correct me if I'm wrong, but most brokerages will just deposit the dividend in your cash account.

[iamlindoro]

Nope, Sharebuilder and eTrade minimally offer no fee dividend reinvesting.  Can't speak for others.

[dragoncar]

They offer it, or that's the default?  How do you choose?  Is there like a check box when you make the trade?

[rugorak]

When you set up your account you decide how you want things. You can also change your mind at a later date so don't worry about it too much. Vanguard uses a money market account as a sweep account. Basically if you buy they remove the money from there. If you sell or get dividends (and don't reinvest) the cash is deposited there. I went with the cash instead of reinvest so when I finally have enough to live off dividends (or partially) I have some idea of what to expect. Also I like to buy exact number of shares with my taxable investments. Just my preference because it makes it easier for me to understand the taxes at a later date. There is no right answer. Just personal preference.

[Richard3]

For most brokerage/investment firms, you will have the option to reinvest dividends in the stock which generated them, or have them deposited as cash in an account of your choosing.  Generally speaking your brokerage allows you both options, but not a mix of both (ie, you can't do 50% reinvest and 50% payout on a single dividend with any that I'm aware of).

Both brokers I have had an account with have let me choose by stock whether I wanted DRIP or cash. If you wanted to withdraw half of your dividends you could switch DRIP off for about half your stocks. It's not quite the same thing, but it would sort of work with ocassional rebalancing / switching to the other half.

[Honest Abe]

Let it reinvest if your goal is long term investing. The compounding effect if reinvested dividend on future payouts makes it worth it.

[ivyhedge]

For most brokerage/investment firms, you will have the option to reinvest dividends in the stock which generated them, or have them deposited as cash in an account of your choosing.  Generally speaking your brokerage allows you both options, but not a mix of both (ie, you can't do 50% reinvest and 50% payout on a single dividend with any that I'm aware of).

This is correct. But for clarification's sake, most brokerages will allow you to select which vehicles receive reinvestment, and which should pay as cash. You could thus have MAIN, MLPI, and GE reinvest but AAPL, VEA, and VSS pay into your money market.

Also, at Vanguard, you can redirect reinvestments. For example, you can have a dividend from high yield pay into GNMA...

Keep in mind that for some companies offering reinvestment discounts - BDCs are often in this category - you often will need to contact your brokerage to make sure that such discounts are applied. An example would be FSC reinvesting at NAV-5% monthly.

[ivyhedge]

Vanguard is special, I think.  Correct me if I'm wrong, but most brokerages will just deposit the dividend in your cash account.

I'll add a few to the list:

ML, BAC/ML, Vanguard, Foliofn, Schwab, and Standard reinvest with minimal effort (if you so desire, of course).

iB does not.