Dividends?

[ActionDavidK]

Do investors have the option to receive their dividends in cash or to reinvest it?

How do dividends affect the price of a stock? High dividends result in higher prices?

Do dividends affect the ability of a stock to move up in price? Could it move up more easily if the company were to reinvest the money?

[maxtower]

When you purchase an individual company's stock, you'll receive your dividends in cash deposited into your brokerage account.
A mutual fund will often allow you to reinvest the dividends in more shares or take a cash payment.
Changes in dividends will affect the stock price more than the actual dividend itself. If a company decides to increase its dividend payout, many will see this as a positive and the share price will rise accordingly. Likewise share prices usually fall when dividends are cut.

If a company reinvested its earnings wisely, then thats better than a dividend payout. Depending on the business though some companies have trouble reinvesting the profits and therefore choose to pay a dividend. In theory its better for the company to reinvest the earnings rather than pay a dividend because you lose money in taxes when a dividend is paid. This is why Berkshire Hathaway never pays a dividend. In practice its not quite that simple.

[emon87]

Yea a large established company might have a very tough time using all its cash wisely - there aren't enough ares for growth at the moment, etc. So they pay a dividend.

Also, until fairly recently (like 25-30 years ago), dividends were the main reason why people bought stock - not expectations of increasing share price.

[Fishhead24]

Most say to reinvest the dividends into the stock.............I take the checks personally.

[adios]

From my experience most companies have DRIP (Dividend Reinvestment Programs). As an aside a lot of companies don't pay dividends due to the fact that they're taxed twice, at the corporate level and at the personal level. Many companies buy back their own stock instead. REITS and BDCs aren't taxed at the corporate level as they're required to pay dividends to maintain their REIT, BDC status. Owning REITs in a Roth IRA would seem to be a good way to go since Roth IRAs are after tax accounts and thus REIT/BDC profits paid out as dividends aren't taxed at the corporate level or the personal level.