No. of Recommendations: 2

You wrote, As I said earlier I am a bit confused with dividends and how they are handled. Though it appears at first glance that TD would give me the ability to reinvest the dividends at low to no cost, provided I accumulated enough to invest them back in; though I could use that as a reason to contribute more to the account.

TD Ameritrade's in-house DRiP (Dividend Reinvestment Program) - like most broker's in-house DRiPs - lets you sign up to have individual stocks (or all future stock purchases) reinvest their future dividends at no additional cost to you. This is typically done by assigning you fractional shares - the only way most brokers will sell you fraction shares of an exchange-traded security.

The purchase is done at the discretion of the broker on the day the dividends or interest payment (some issues pay dividends that are treated as interest) are credited to your account. This is usually done the afternoon after the pay-date. TD Ameritrade will credit your cash account with the income, then deduct it for the purchase - not necessarily in that order, BTW. The additional shares will then appear in your stock positions.

There are two important dates for dividends. There is the date of record (or record date) and the date of payment (or pay date). To obtain the dividend you must hold the security on the record date. The pay date can be anywhere from one day to a month later. If you sell the security after the record date, you will still receive the dividend - and if it was set to re-invest, you will get additional shares even if you thought you'd sold your entire position. (Happened to me once.)

Brokers also reserve the right to refuse to DRiP a security. This seems to depend on how thinly traded or how many shares are held at the broker by other accounts. However, I've owned a few very thinly traded preferred issues in the past and have had no trouble with TD Ameritrade enrolling them for DRiP.

- Joel
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