“Practical Advice about Finance and Technology”

 Why do they make up the core of my portfolio? Very simple lets take my largest position AT&T (T) I bought 100 shares at the end of March 2007 for 38.88. Today it’s trading at 38.59.  I did not lose anything from this trade quite the opposite I have made money on this trade.  AT&T pays a quarterly dividend of around 4.15% yearly yield.  Hence for the time that I have held my shares there were 4 dividends issued. (.36, .36, .40, .40) This dividend yield totaled to 152 dollars, covering any losses that I may have received from the decline in stock price. Instead of taking my yield and spending it on whatever tickles my fancy at the time. I reinvested the dividend into AT&T by the use of DRiP (Dividend Reinvestment Plans). This is a fairly simple to setup and use. It’s automatic!! Every time that a dividend issued that capital is then used to buy more shares of the same stock. 

Example:   Position in Company XYZ

$10 per share (stock price does not change)

1000 shares

10%

 (To keep it simple dividend is paid once a year)

 After one year the investor will have

1000 dollars that they then use a Dividend Reinvestment Plans enough to buy another 100 shares 

Giving a total of 1100 shares for the investor, these shares will then issued dividends on in the next dividend period. This produces an extra110 shares for the investor in the next dividend period and so on for as long as they are in that position.

 That means that by the end of the end second year the investor has a total of 1210 shares.

All of which produce a dividend that can be used to produce additional shares for the investors.  Dividend Reinvestment Plans is not for every stock that has a good yield. It’s a good strategy for company’s that you plan on not selling for at least 1 year.. There are lots of stocks that have high yields but you should not us a Dividend Reinvestment Plans on. For example anything that you think will not be around down the road. Invest carefully and stay on that stock making sure you don’t lose more then you would like.  There is also using the dividend yield to reinvest in other stocks to diversify your portfolio.  Don’t forget this is just a brief if you have more specific questions feel free to ask.

As always DO YOUR RESEARCH! Good luck and happy profits