Dividend stocks could be poised to get their moment in the sun as interest rates fall – and investors only need to take a simple step to boost their long-term returns in these positions. The Federal Reserve kicked off its rate-cutting campaign in September with a half-point reduction, and central bank policymakers projected that rates would come down by another half point by the end of the year.
s, come into play. Taking bites of the apple Rather than receiving a cash payment when your favorite stock pays its dividend, you can elect to have your broker reinvest the dividend. This way, the money is used to buy shares, growing your position in the stock over time. There are a few advantages to so-called
s. For starters, it's a form of dollar-cost averaging into a position, meaning you're buying the stock at regular intervals regardless of the price. "This is a great opportunity for investors to take 'bites of the apple' every time a dividend is paid," said Jay Spector, CFP and co-CEO of EverVest Financial in Scottsdale, Arizona.
care and maintenance As easy as it is to "set and forget" your dividend reinvestment plan, you'll still have to perform some regular upkeep on the position. For starters, even though you're not receiving your dividend in cash, you're still responsible for reporting the income to the Internal Revenue Service and paying taxes if the position is held in a taxable account.