And what do you mean ‘Allocate Dividends’?
Once we embark on dividend investing and dividends start to arrive, we are faced with a “nice” problem: What to do with them.
It is simple to just either get them deposited into our checking account, or, as in my case, to reinvest them. I reinvest most of my dividends for the simple reasons that it grows my net worth without me needing to do anything special, it is easy, and it is easier than remembering to specifically send money to invest separately.
(Of course I do invest more than just dividends, but investing other funds is a once-in-a-while thing that I do when a stock’s price and valuation is at or below my targets.)
While simply aggregating all dividends into a checking account is a nice and a simple way to get access to this income, I don’t follow that path. Most of my dividends are reinvested in the stock of the company the issues its dividend.
I do keep a record of my investments and dividends. The number I watch most closely is the monthly dividend income. Since most dividends are paid quarterly, my calculations include dividing quarterly income by three to get the monthly amount.
Keeping track of the calculated monthly income from dividends is helpful to me. While reinvesting is how I handle most dividends, knowing the monthly total allows me to understand what I could use the dividends for if needed.
For example, since I know about how much my monthly expenses are, should I switch my dividends to cash instead of reinvesting, I know which monthly expenses I could cover. This gives me great peace of mind regarding future expenses.
Another common use of dividends is to not use dividend reinvestment. Just allow dividends to accumulate in a checking account, and when sufficient funds are available, invest as desired.
Some people use the income from dividends to fund and cover certain specific expenses. Once one expense is fully covered, then additional dividends over time are used to start to cover another specific expense. And so on.
In one story I have heard, an investor in oil companies uses his dividends to pay his vehicle expenses. Or dividends from food companies to pay for the household food budget. While those stories are interesting, I would not allocate based on source, just based on my financial needs, namely my bills.
How do you use your dividends? Let me know here.
The photograph of San Francisco in the aftermath of the 1906 earthquake is entitled “The Burning City of San Francisco. Photographed from a boat on San Francisco Bay on Thursday, April 19th, [1906,} the day after the earthquake, showing the conflagration at its height. The two pillars of smoke stood over the doomed city for two days. The ferryboat in the right foreground is loaded with refugees rushing to Oakland.” The photograph is from “The San Francisco calamity by earthquake and fire: a complete and accurate account of the fearful disaster which visited the great city and the Pacific Coast, the reign of panic and lawlessness, the plight of 300,000 homeless people and the world-wide rush to the rescue”, Charles Morris, editor. 1906.
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