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As I continue my research and daily reading of the boards I came up with a question. I'm interested in dripping either PAYX or Nokia or PFE however I was wondering what the "old timers" consider is best to do with dividends. I assume your logical reply will be to simply reinvest them but it just sounds so tempting to not do so. I'm especially curious because of the research I've done on Payx. Thanks for your help once again.
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Reinvesting the dividends is a great way to increase your holdings, over the long haul. If you get back the dividends in the form of cash, somehow that money just disappears. Also, unless you have a lot of shares, the dividend check won't be very much.

"A penny saved is a penny earned!"

Happy DRIPping...

Kathy
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I was wondering what the "old timers" consider is best to do with dividends.
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Belgoboy,

In a phrase, just do it. Reinvest the dividends today. It is money you never really knew you had to start with and over time is the dividends that compound the most times over the term of investment that equal the large payoff. Someday when you are living at comfortably, change your option from reinvest to OCP only. Live off your dividend checks and add to your holdings at will. On my e-mail I have a tagline that is a quote attributed to Benjamin Franklin:

"Money makes money. And the money that money makes, makes more money."

This is the core, fundamental base of compound interest.

Compound interest is such a powerful tool. Given enough time, you may accumulate more and more money by doing nothing other than adding more of your own cash, letting that cash earn cash, and letting that cash earn cash. Admittedly, time is the toughest component to spare when one finally has the money to set aside for a period of time, but to borrow a line from the movie "A League of Their Own" – “Of course it's hard! It's supposed to be hard! If it weren't hard, everyone would be doing it. The HARD is what makes it GREAT.” (Thanks to jenpowell, http://boards.fool.com/Profile.asp?uid=96919342 for this quote.) You just need ample time to realize the power of compounding. As we live day to day, this concept, like the concept of an infinite universe is sometimes difficult to get your head around. We focus on our moment to moment existence, and not so much on what our entire life times entail.

I believe Chairman Buffett of Berkshire Hathaway has explained the exception to compound interest. It is the Law of Big Numbers. When you accumulate such a vast fortune, in today's terms between a few hundred billion dollars and a few trillion dollars, there ceases to be avenues where money can be deployed to earn more money. You are at a mass as such that can only increase as much as the global economy will allow it. At this point you can own all assets that will perform well enough to still gain and no more. At this point growth slows and nearly stops but pretty much entirely supports the global economy. Also, at this point, a rational person probably has no more materially to want. However, until you get to this point, I wouldn't sweat it too much. If you get here and run into the Law of Big Numbers, let us know, and we will figure out something I'm certain. There are charities that deserve support, that are always in need of financial backing.

Compound interest is akin to a second religion to me. I believe it. It has even been proven to me. It works for decades before slowing dramatically. Long after I am gone.

My point is - Compound interest only grows stronger with time and dividends, interest, and additional investments of capital. Take away dividends and your stock may grow through price appreciation and additional investments or OCPs, but you have cut off the leg of the added dividend growth. Many times you will see historical returns quoted as "increased by X%, but with dividends reinvested it increased XX+%". Dividends matter. They always have. They are a crucial component in allowing compound interest to work for you.

You have to work hard for your money.

You must let your money be on constant overtime, continually busting it's @$$, working harder for you!


exilion
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"A penny saved is a penny earned!"

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I think this is Benjamin Franklin as well.

exilion

(Smart man, that Ben Frankiln.)
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Thanks Kcourt and exilion I must say you have really out done yourself. What a passionate piece of writing there! You certainly made me realize the beauty of just sticking in there and waiting for the long term rewards. Thanks again.
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"When you accumulate such a vast fortune, in today's terms between a few hundred billion dollars and a few trillion dollars, there ceases to be avenues where money can be deployed to earn more money. You are at a mass as such that can only increase as much as the global economy will allow it. At this point you can own all assets that will perform well enough to still gain and no more. At this point growth slows and nearly stops but pretty much entirely supports the global economy. Also, at this point, a rational person probably has no more materially to want."

One truly hopes...I forget who said it, but I think one of the funniest lines I ever heard was, "After ten million, it's all just paperwork anyway."

Thanks for the prop, exilion!
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Great post exilion,

"Money makes money. And the money that money makes, makes more money."

You must let your money be on constant overtime, continually busting it's @$$, working harder for you!


We all have metaphors and motto's to live by. Mine comes from George S. Clason's "The Richest Man In Babylon":

Learn to make your treasure work for you. Make it your slave. Make its children and its children's children work for you.

That one paragraph from that book is what brought me here to the game.

Keith...
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Youri,

I've used this example before;

1982 my father purchased 500 shares of BCTEL @ $6 each for a total investment of $3000. He did nothing more but let the dividends reinvest.

By 1998 Before BCTel merged with TELUS he had $850+ shares at $55 per. Total value = $47,650 with an annual dividend over $1200 per year now.

This represented a 19.2% annual return from 1982-1998. The dividend alone was now paying a 40% annual return on his original investment of $3000.

I'd say reinvest the dividends.

OB
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Thanks Kcourt and exilion I must say you have really out done yourself. What a passionate piece of writing there! You certainly made me realize the beauty of just sticking in there and waiting for the long term rewards. Thanks again.
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Belgoboy,

Actually, I had a ball writing that response. It started fairly simply enough, but just kept on growing. I endeavor to convey my passion for these ideas every time I write or talk with someone about investing, DRiPping especially, due to the soomewhat limited funds that DRiPpers start with.

It really makes my day to convey the message and have you understand it as I want you to understand it. Sometimes, I feel as if I am preaching to the choir here. However to me, this simple message of working for your money and putting your money to work goes hand in hand with researching, understanding, and taking action for your personal finance.

exilion
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