My online broker doesn't offer free Divident Reinvestment on stock trades; is this a bad thing?

Question

I'm with the discount broker, Scottrade.

Independent reinvestment of earnings would be the cost of a stock trade, which is $7/transaction.

Answer 1

That is part of what you need to consider when chosing brokers, besides trade fee and interest rate on idle cash.  They have to make up for low trade fees some way.

For example I currently have my Roth IRA and part of my IRA at Fidelity for mutual funds and longer term investments.  I keep enough assets there to qualify for $10.95 trade fee, interest rate is usually about as good as you find for idle cash, no charge for over 1000 mutual funds, and they DRIP (dividend reinvestment) at no charge.

Part of my IRA is at thinkorswim.com for short term trading, which only charges $5 for stock trades (less for options), but pays hardly any interest on idle cash, and does not DRIP.

Answer 2

Reinvestment of dividend int an independent work of the broker, he can't reinvest without your order and whenever you order an investment you must pay the brokerage.

Answer 3

If you are a short term trader it doesn't matter.

If you make occasional stock purchases and invest for the long term, dividend reinvestment may be beneficial.  Especially in an IRA where your purchases are limited.

If you make  frequent purchases during the year, my opinion is that automatic reinvestment is not worthwhile.   With automatic reinvestment you get the price on the pay date.   I try to buy stocks on a dip.   So I do reinvest the dividends, just not on the stock that paid them.  I use any dividends received to buy more shares of the next stock I buy.  It isn't perfect, but I believe that I get more for my money that way.

I also use Scottrade, but previously used a broker with automatic dividend reinvestment.  I prefer not to have automatic reinvestment.

Answer 4

Reinvestment of dividends is only important if it's important to you.  It can be a pain at tax time if it's in a "regular" account vs. an retirement/IRA type of account.

This is totally up to you!

Answer 5

Yes its a bad thing.  I told a friend of mine to move her account because of that.  If you exam the charts of mutual funds, one chart shows return of investments over the life of the fund.  The line of value from fund price alone goes up only a little bit in relation to the line from the value of the fund price PLUS reinvested dividends/capital gains.

For long term investing (not short term trading that Scottrade is good for), it pays to have your money work for you by compounding, like reinvested dividends do.