Keep the Dividends Flowing: Screening for DRPs

    by Wayne A. Thorp

    Dividend-paying stocks are usually classified as “conservative” stocks, at least compared to highly volatile growth stocks. Dividend income provides a steady source of return, and no longer suffers from a tax rate disadvantage.

    Also, investing in companies with dividend reinvestment plans (DRPs) offers a conservative low-cost approach, since dividend payments are put to work immediately with little or no transaction costs involved. [For more on the basics of DRPs, see our annual guide.]

    However, selecting stocks from a universe that consists only of conservative stocks—firms offering dividend reinvestment plans—is not a “conservative” approach, and can quickly land you into trouble.

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