Every 6 months investors are faced with an important decision regarding their dividend payments – should they re-invest them or use the cash proceeds for other purposes?
“For our clients who are approaching or are in retirement, an income stream for their dream lifestyle is essential and they get that from dividends” Tim Mackay, Australian Financial Review
I was asked my views in a recent Australian Financial Review article titled ‘What sharemarket investors should do with their dividend payments’ (behind $ paywall)
Here are my top 5 reasons to re-invest or to take your dividends as cash.
Top 5 reasons to re-invest dividends
- For long time investors, it puts their money back to work for them immediately without having to think about it
- With markets currently down, it may mean you are dripping money back into the market while prices are down
- It’s easier to track the true total return of your individual investment
- You avoid brokerage costs
- Sometimes you are given a discount on the price you pay when re-investing
Top 5 reasons NOT to re-invest dividends
- Cash dividend payments allow regular re-balancing of portfolios back to an investor’s target asset allocation
- Dividend re-investing takes away your investing choice while you can invest cash dividends in different investments
- Tax still needs to be paid on dividends if they are re-invested so you must ensure you have cash available to cover this
- For retirees, the cash income from their portfolio supports their dream lifestyle
- Constant small acquisitions can complicate your capital gains tax calculation and increase your accounting fees
If you have an AFR subscription, you can read the full AFR article <here>.
What do you think? If you have more questions, please do not hesitate to call us to day to ask for our expert SMSF and super advice in 02 8084 0453.