Dividend exchange traded funds (ETFs) have become a hot ticket as interest rates sink. But reinvesting those dividends works a little bit differently than what new ETF investors might be used to.
Matt Krantz for USA Today reports that most mutual fund companies offer to reinvest your dividends in additional shares of the fund paying the dividend, or any of their funds. This means that when a mutual fund you own generates a dividend, that cash is put to work right away by keeping you fully invested and all without initiating a trade or fee. [Dividend ETFs: Which Companies Are Paying?]
The same generally goes with ETFs in that if you own ETFs that pay a dividend, the dividends are deposited into your brokerage account. Most large brokerage firms will let you sign up for a service that will automatically reinvest those dividends. You can also reinvest dividends in exchange for full shares. [The Dividend ETF Comeback.]
However, at a brokerage, a commission will usually apply if you reinvested dividends. If this is something you plan to do frequently, choose the broker with a commission setup that works well for you and your plans.
For more articles on dividends, visit our dividend ETF category.
- PowerShares Dividend Achievers (NYSEArca: PEY)
- WisdomTree LargeCap Dividend Fund (NYSEArca: DLN)
- Vanguard Dividend Appreciation (NYSEArca: VIG)
- SPDR Dividend ETF (NYSEArca: SDY)
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.