13.11.11
Guppies and DRIP's
Ever raise guppies as a kid? I as soon as had an aquarium and bought a couple guppies. The male had bright, fairly colors and the female was plain brown and fat. In a number of days, I observed a bunch of tiny guppies hiding within the plants. Regardless that the mature fish fed on the newborns, a lot of them survived and in a few months I had a tank stuffed with guppies. I keep in mind considering possibly I should take some of them again to the pet store and try to get my money back. So, what does this must do with investing?
Good dividend paying stocks can resemble guppies. Especially in the event you participate within the DRIP, or dividend reinvestment plan that many firms offer. This can be very simple to arrange through your broker. How does the DRIP work?
Let's say you purchase a hundred shares of XYZ corporation for $50/share. Assume that XYZ is paying a 5% dividend of $2.50 and the payments are made quarterly. You'll obtain $2.50 x one hundred shares divided by 4 (quarters) = $62.50. That would robotically buy 1.25 additional shares of XYZ. Now the following quarter you would get the $62.50 once more, plus a small dividend on the 1.25 shares of $0.78. This time your account would develop by another 1.27 shares. This compounding occurs every three months and is independent of the stock price.
Actually, if the stock price declines, your reinvested dividends purchase a much bigger amount of shares. This may aid you sleep better throughout these excessive volatility, turbulent markets. It's the magic of compounding made even more lovely by the fact that over time, most companies tend to increase their dividends. When dividends are elevated it is like receiving a advantage enhance at work!
In these uncertain markets, figuring out and concentrating on stable, high dividend payers and placing the cash back by means of the DRIP's could also be a technique price considering. It is potential that over just a few years time you should have an aquarium (portfolio) full of guppies ($).
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