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Dividend Reinvestment Plans

If you want to see your investment gains accumulate and exponentially grow over the years, consider dividend reinvestment plans. We recently talked about dividend stocks like utilities when we wrote about stock picks for 2014. Utilities commonly pay handsome dividends and commonly offer dividend reinvestment plans. The advantage of dividend reinvestment plans, also referred to as DRiPs, is that your dividends are automatically reinvested and you receive decimal fractions of stock so that every cent of dividends is reinvested. You do not receive a dividend check but rather a statement that your dividends were reinvested. At the end of the year dividend reinvestment plans send you the appropriate information for your tax returns as well. There is no temptation to spend the dividend check and you will see steady and exponential growth of your investment even if you do not purchase new stock. And with DRiPs there are commonly no fees such as you would pay if you used your dividend checks to purchase more stock.

The utilities we mentioned in our 2014 stock picks article were:

  • Southern Company SO
  • Duke Energy Corp DUK
  • Dominion Resource D
  • American Electric AEP
  • Cleco Corporation CNL
  • Entergy Corporation ETR
  • NextEra Energy, Inc. NEE
  • NRG Energy Inc NRG
  • SCANA Corporation SCG
  • TECO Energy, Inc. TE
  • Xcel Energy Inc XEL

There are lots of dividend stocks and lots of dividend reinvestment plans. As part of your stock portfolio consider holding conservative stocks that will continue to pay dividends in good and bad economies. Consider dividend reinvestment plans in order to profit from exponential growth of your investments.

Screening for Dividend Stocks

A quick and handy tool for stock screen is the Yahoo Finance Stock Screener. You can use this tool to screen stocks by sector, price, dividends and more. As a conservative example we choose stocks with a market cap of $10 Billion or more and a dividend yield of 3% or higher. We found Duke Energy Corp, which is in our list of utilities. The company has a market cap of $50.44 Billion and pays a 4.4% dividend. We googled Duke Energy Dividend Reinvestment Plan and found out that for their DRiP you do not pay purchase fees or reinvestment fees and that purchases are made every month. The stock screen in which we found Duke Energy contains

  • ConocoPhillips (80.28B, 4.2%)
  • Cisco Systems (119.43B, 3.4%)
  • Dow Chemical Company (55.59B, 3.2%)
  • Chevron Corporation (218.24B, 3.5%)
  • Dominion Resources (41.34B, 3.4%)

Note that Dominion is in our list of utilities.

High Dividends Versus Staying Power

The companies listed in the screening section are been around for years and are not going away. This is the point of buying dividend stocks and using dividend reinvestment plans. There are higher paying dividend stocks but sometimes the company is paying out huge dividends to disguise an intrinsic weakness in their company. If we apply the same requirement of a $10 Billion market cap but look for a dividend yield of over ten percent the screen gives us two stocks, Annaly Capital Management and Seadrill Limited. Annaly used to sell for $19 a share through most of the last decade and fell by half this last year. Think of it as a 5% dividend stock whose price fell by half and whose dividend could be reduced as well. When we screen for Seadrill we see an investment article that notes that Seadrill will only be able to sustain its dividend if the current weakness in the oil drilling market improves.

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