Dividends on the stock market generate an average profitability of around 5% and in any case it means constituting a fixed income within the variable. Through a fixed and guaranteed payment Every year, whatever happens in the equity markets. With an interest rate that widely exceeds that generated by the main banking products (fixed-term deposits, corporate promissory notes or high-income accounts). In all of them, customer compensation rarely exceeds 1% levels and is one of the reasons for opting for the dividends distributed by some of the listed companies.
In any case, there is another alternative way to collect dividends in the equity markets and it materializes through the reinvestment of this charge to the shareholder. It is true that not all companies make this action possible, but it is an option open to small and medium investors who wish to strengthen their positions on the stock market. So that in this way, its presence in the listed companies is broader and more powerful than until then. In a way, it is a way of keep opting for the bag as the best strategy to make the savings profitable from now on.
What is achieved through this special investment strategy? Well, above all to reinforce the positions already taken. Because dividend reinvestment plans allow the investor to automatically purchase new shares. Its most immediate effect is that the balance of actions it grows little by little. With the real possibility that some more high capital gains because we have a greater number of shares for you as a result of this action on dividends. Not surprisingly, it is something that a good number of shareholders have been doing in recent years.
Dividends go to investment
Of course, the reinvestment of dividends allows you to build a very powerful investment portfolio in the long term. Among other reasons because you are accumulating shares every year and depending on the remuneration of this important payment to the shareholder. It is a very special strategy that is aimed at an investor profile more aggressive that he prefers above all to remain confined to his investments rather than the one-off payment of interest every year. In other words, you are in no hurry to make the operation profitable since your main objective is a multi-year operation. Of course, it does not meet all the expectations of savers.
On the other hand, when opting for this decision, what you really want is to invest the assets and it does not matter that the dividends are collected at the time of distribution. They are exchanged for actions of the company where the user has open their positions. From this perspective, it is a very peculiar system to improve the income statement in the medium and long term. With a very stable vocation in the value that is what differentiates it from other kinds of tactics. In other words, you actually collect dividends, but not in cash. If not, on the contrary, you materialize them in actions.
It can be a more profitable operation
In any case, you have to see is this is an operation that can be more profitable if the actions after the years they revalue. Here is the key to deciding whether or not it is advisable to go to this movement in the equity markets. Because if in the end it were this way, there is no doubt that the investor will win in their movements in the stock market. It may even double or triple the profitability you would have obtained through the payment of dividends. In this sense, it is necessary to be very clear about the objectives that are being pursued because this operation can also have negative effects on the income statement of users.
Before opting for reinvestment in dividends, you should consider what you are pursuing in the financial markets. Especially with regard to terms of stay since if your operations in the stock market are directed to the short term it does not make any sense to execute this operation. Moreover, with almost all certainty that in the end you would end up losing money and you would regret not having received the payment of the aforementioned dividends. Therefore, it is an operation that requires reflection on what you are looking for in the always complicated world of the stock market.
Acceptance of reinvestment
If in the end you lean towards this investment strategy, you will not lack reasons to carry out. Not in vain, you will have to analyze in great detail what are the benefits that this operation will bring you. Although, in order for you to take the measure in a balanced way, you should not forget about the damages that not directly collecting dividends will cause you. As we have told you in this article, this decision will depend substantially on the profile you present as a small and medium investor. Well, it is at the end of the day what it is about.
In this sense, you cannot forget that those of an aggressive saver are not the same as those of a defensive or more conservative profile. To the extent that they will require a noticeably different treatment, as you can foresee through your learning in the equity markets. Of course, it is one of the factors that you should best assess at the precise moment in which this situation arises. Above other technical approaches and perhaps even from a fundamental point of view. Do not forget if you do not want to make a serious mistake when the time comes for the distribution of dividends.
Should the dividend be reinvested?
This scenario will be highly favorable when some of the situations that we are going to explain below occur. Not in vain, you will get your investment to be much more potent than up to now. So that you do not have any kind of doubts, nothing better than to show you these scenarios on which your decision will depend with the values ​​that distribute dividends among their shareholders. Are you willing to get to this relevant point? Well, pay attention because it can be a very helpful tool in your investment in the stock market.
Convenience of your hiring
Although it is a moderately profitable product, not all are advantages and its hiring depends on the type of client to whom it is directed. Among the advantages that the stock market user can find are the following:
- Provides a high pay that goes entirely to the investment that has been developed at that time.
- Allows you to eliminate the payment of maintenance and administration expenses and even of all commissions. On the other hand, no kind of taxes will be discounted, as is the case with the direct payment of dividends.
- It is a very simple way that you have to reinvest the money generated by this means of retribution. Without the need to go to financial markets to set a price to execute the trade.
Disadvantages of this strategy
On the contrary, its application entails a series of damages that cannot give you as a solution to go to this system to enter with new positions in the selected value. Because in effect, its development involves a series of drawbacks that you should also take into account from now on. And among which the following stand out that we expose you in this article.
- Do not affect to all equities that distribute dividends to their shareholders. If not, on the contrary, only a minority is governed by these parameters in investment. To the point that it can make your later choice difficult.
- In any case, it is a defensive product for investors who prefer to invest directly in the stock market or use other mechanisms provided by equities.
- This very special strategy is aimed at shareholders who have shares deposited in the same bank and at the same market value.
- These values ​​are integrated into the so-called Ibex Top Dividendo, which is an index of the Spanish stock market that includes the 25 companies with the highest dividend yield in the Spanish market and whose objective is to collect company behavior who offer this type of retribution.
- In this way, the investment in shares is allowed to go growing automatically and progressive and up to the limit that you yourself impose based on your liquidity needs. In each case, it will be significantly different and therefore its formalization will be advisable or not.
- Dividends generated for the shares and the liquidation of the interests they will not be credited every quarter on the account, as in these cases.
- This modality has the advantage over other products developed in that here only limited to actions of the listed companies themselves. Generally corresponding to the heavy weights of the bag, known as blue chip.