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Dividends are a portion of a company’s profits distributed to its shareholders. While many investors choose to receive dividends in cash (your money, your choice), reinvesting them can be a powerful strategy for building wealth over the long term.
This smart practice, known as dividend reinvestment, involves automatically purchasing additional shares of the company with the dividends received. In this piece, we’ll share 3 reasons why dividend reinvestment is a s brilliant decision.
Dividend Reinvestment is a Smart Move
Reinvesting dividends allows you take advantage of the power of compound interest. As your shares grow, the dividends they generate also increase. Over time, this compounding effect can significantly boost your investment returns.
As your shares increase, you don’t need to worry about bookkeeping or the intricacies of dividend payouts. With Coronation Registrars managing your shareholding records and promptly distributing dividend payments to all shareholders, you can focus on the growth of your portfolio. Need more convincing?
Here are 3 reasons why dividend reinvestment is a strategic move:
1. Simplicity: Dividend reinvestment is a hands-off strategy that requires minimal effort. Once you set up automatic reinvestment, your dividends will be used to purchase additional shares without any further action on your part.
2. Tax efficiency: In some cases, reinvesting dividends can be more tax-efficient than receiving them in cash. This is because dividends may be eligible for preferential tax treatment, especially if held in tax-advantaged accounts.
3. Hedge against currency fluctuations: Similarly, for fixed income instruments like Coronation’s fixed income dollar fund, dividend reinvestment can help investors hedge against currency fluctuations by allowing them to invest and reinvest in a dollar-denominated investment. Coronation’s fixed income dollar fund is a type of investment that pays out a fixed amount of money in U.S. dollars.
Not Just a Theory, Dividend Reinvesting Works
A recent study by Coronation Research shows that reinvesting dividends can significantly boost your investment returns. Over the period from 2016 to 2023, reinvesting dividends led to a total investment return of 304.6%, compared to 212.7% when not reinvesting. This demonstrates the power of compounding, where your earnings generate more earnings, accelerating your investment growth.
Remember that this strategy works best with stocks (shares) bought from companies that consistently generate high profits. By reinvesting dividends in these strong companies, your money can grow faster than inflation.
Take Extra Measures
Look for companies with a history of consistent dividend payments. This suggests that the company is financially stable and committed to returning value to shareholders. However, you may consider consulting a financial advisor at Coronation Securities for expert advice regarding viable companies to invest.
In a Nutshell
For investors seeking to maximise their returns through dividend reinvestment, Coronation Registrars will give you peace of mind, keeping your shareholding records intact and up to date.
Coronation Registrars will help you unlock the full potential of your investments and achieve long-term financial success.
Contact Details:
Email: customercare@coronationregistrars.com
Phone: 02012272570
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