Expand your stock ownership … DRIP by DRIP | VailDaily.com
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Expand your stock ownership … DRIP by DRIP

Charlie Wick, Tina DeWitt and Bert Roy

At one time or another, you probably wished you could increase your investments, if only you had the money. And it’s certainly true that investing can be expensive. However, you might be able to get more bang for your buck and over time significantly increase your holdings by buying shares of dividend paying stocks and reinvesting the dividends into the same stocks.To follow this strategy you have to find stocks that regularly pay dividends. Fortunately, by doing a little research you can locate companies that have long histories of not only paying, but also increasing their dividends. Keep in mind, though, that stocks are not fixed-income vehicles and dividends can be increased, decreased or totally eliminated at any point without notice, no matter how good their track record has been.If you are interested in reinvesting dividends you might want to look for companies that offer automatic dividend reinvestment plans, also known as DRIPs. And you don’t have to receive enormous dividends to participate either. Many DRIPs allow you to send in as little as $10 to $50 at a time to buy additional shares of stock.The biggest benefit of DRIPs is the ability they give you to increase the shares of stock you own. But you’ll find other advantages, too. Here are a couple to consider:Investment discipline: To be a successful investor, you need the discipline to continuously invest, month after month, year after year, in good markets and bad. Many people lack this discipline and take a time out from investing until they feel they can really afford it. But, as you know we can all find other ways to spend money, and investing often gets tossed aside for what appear to be more pressing needs. However, by taking part in DRIPs you will invest steadily and with virtually no effort on your part. And since you never received the dividend checks in the first place you won’t really miss the money. Remember, though, that a systematic investment plan does not guarantee a profit and does not protect against loss in declining markets. It involves continuous investment in the security regardless of the price of the security. You should continue your ability to invest through periods of low price levels.Tax benefits: Until the laws changed a few years ago, dividends were taxed at your current income tax rate. Now however, dividends are taxed at a maximum rate of 15 percent. This rate is set to expire at the end of 2008, barring congressional action. But even this new, relatively low rate can lead to a hefty tax bill for you if you receive a great deal of dividends. Consequently, if you participate in several DRIPs, you might want to keep some of your stocks in a tax-deferred vehicle, such as an IRA.DRIPs for the long runIdeally, to use a DRIP you want to find stocks that offer attractive current yields and growth potential, and you want to keep adding shares of these stocks for a long time. Fortunately, you should not find the task too hard, because the companies that regularly increase dividends are generally high-quality businesses that actively try to reward their investors. So, work with a financial professional to identify these stocks and then turn on the faucet and let the DRIPs begin.Charlie Wick, Tina DeWitt and Bert Roy are investment representatives with Edward Jones. They can be reached in Eagle at 328-4959, in Edwards at 926-1728 and in Avon at 845-1016.Vail, Colorado


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