Low-Cost Investing: A Guide to Dividend Reinvestment Plans
The attraction of dividend-paying stocks has increased now that dividends receive preferential tax treatment. Companies that offer dividend reinvestment plans—in particular those that will sell initial shares directly to the public—offer the added bonus of lower transaction costs.
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More than 750 companies in the U.S. offer dividend reinvestment plans to their shareholders, and almost half of those will sell even the initial shares directly to the public, which means you do not need to own any shares in order to join the plan. The concept is straightforward: Instead of sending participating investors cash dividends, the company applies those dividends to the purchase of additional company shares with little or no commissions levied.
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