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Subject:  Re: Effects of Qtrly Reinv.? Date:  5/20/1999  11:50 AM
Author:  Juggernaut8 Number:  8136 of 27957


I'm don't have anything against those hardworking dividends, I just want them to get to work earlier and work longer hours. Lets say you put 2K into stock X in a brokerage account year 1. Let's say the yield is 3% or $60 for the first year. If you have more money to put in at the end of the 1st year fine, you buy one extra share or so with the cash from dividends. But here are some advantages of the DRiP, which you probably already know: the first quarter dividends go in for .75 of a year etc.,etc.,etc. and they go in for free or less than the cost of commission, which probably impacts your yield a lot especially in the early years(when you'd be ill-advised to spend $15 commission to put let's say $150 in quarterly dividends in). And think of year 20, where let's say due to some spectacular growth and additional capital paid in your account is worth 250K, with the same dividend yield of 3%. The $1,875/QTR you're now getting requires you to pay commissions four times a year in a brokerage account v. free and immediate in a DRiP.

Don't get me wrong, the freedom and liquidity of owning stock in a brokerage account has major advantages, the main one being you can sell underperforming stocks and immediately put them into a better performing Maker or Breaker stock. BUT, if you have a stock that you're sure you're going to hold for the long haul it probably grows faster due to the more frequent compounding in a DRiP. But the $.50 question is how much faster?

I think it would be interesting to run a simulation to see how fast growth would occur in a DRiP v. a brokerage account and I can't believe that someone in academia or Wall Street hasn't done it already. Maybe with all the fools out there that are not asleep at their monitors after reading this long-winded post someone knows the answer. Thanks.
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