To DRIP or not to DRIP? That is the question!
I am a relatively inexperienced investor, and I have often seen advice to opt for automatic reinvestment of dividends in order to compound the portfolio’s growth. However, I’m not so sure that that is always the best policy. For example, if I opt for the dividends from my holdings to be automatically reinvested in the same stock I am charged 2% of the reinvested dividend, whereas if I hold the dividends in cash until I have a reasonable sum to reinvest I am charged a flat £5.00 for the investment. So £1,000.00 of dividends would suffer individual charges totalling £20.00 (£1,000 x 2%) whereas the £5.00 fee on a £1,000 investment represents only 0.5%. I realise that the pound/cost averaging of the DRIP method will tend to average out the advantages/disadvantages of reinvesting into a falling/rising market. On the other hand the advantage of retaining the dividends in cash is not only lower percentage fees, but the flexibility of being able to choose to make a single investment in an attractive stock at a judicious point in time, thus, hopefully, beating the return achieved by the DRIP.
Is my thinking reasonable? All or any comments are welcome .