Dividends! That’s the money paid from by a company to its shareholders typically quarterly. You may have seen this as a potential type of income to supplement your income. If you have shares of Apple, Microsoft, Walmart, Home Depot, Costco, or any other company that pays dividends, you should see a dividend deposit into your account each quarter.
There are companies that do not pay dividends. Companies like Amazon and Tesla do not. Before you consider any investment expecting to receive a quarterly dividend, double check the company.
What you do with your it is up to you. You can withdraw it, let it sit in your account, or reinvest it. Depending on the type of account you have, your dividends can be considered as taxable income. For example, if you have a cash broker account and you received $1000 in dividends, that $1000 is going to be considered as taxable income regardless if you kept it in your account or withdrew it. If you receive dividends in a retirement account, such as an IRA, those dividends won’t be considered as taxable income until you withdraw them. Withdrawing funds from a retirement account early can incur a penalty, so be aware of that.
Dividends is essentially money in your account. If you decide to withdraw the money, that’s cash in your pocket for you to use. Be mindful what kind of account you are withdrawing from because there can be tax considerations and/or withdraw penalty considerations.
If you decide to let the dividend money sit in your account, that is an option also. You may be waiting for your dividend amount to grow quarter after quarter. You may be waiting for a stock to come down at a certain price, or just saving it. Again, depending on the type of account you have, be mindful of the tax and/or withdraw penalty considerations.
If you decide to reinvest your dividends, that is where you take the money each quarter and continue to buy stocks, mutual funds, REIT, or other investment. Some brokers have an option to do this automatically for you.
I have never withdrew any of mine. My financial goal is to build and grow my portfolio so withdrawing goes against that. Some of my accounts, I receive very little dividends, not even enough to buy a stock. In that case, I’ll let my dividends sit and wait for it to grow quarter after quarter. My other accounts where I receive a larger amount, I will reinvest it and buy more stocks with it.
You do not have to buy more of the same stock that you received the dividends from unless you have it done automatically for you. Check with your broker on this. I have bought the same stocks where the dividends came from but this year my focus is on another stock that I just started investing in, Tesla. After seeing how Tesla performed in 2020 and doing my research, I feel that Tesla still has room to grow. Although Tesla does not have a quarterly dividend, my hope is that the company will continue to grow. By no means is this a pitch for you to buy Tesla. This is my 2021 investment goal.
Dividends can be a good source of income. You have choices on what to do with it. Be strategic about your money and let it support your financial independence goals. If you are interested in following my journey, email subscribe to get alerts of latest posts and follow me on Facebook.