Reinvesting Dividends Pays Off

I consider myself a fairly frugal person. I like cutting recurring expenses, which is why I drive a ten year old car and only have a discounted cell phone with the lowest plan possible. Saving money and investing in quality dividend stocks is just one of the strategies I utilize to increase my dividend income. Cutting expenses however can only go so far however. That's why generating extra income is so important to me. Besides the dividend income from my portfolio, I often look for brokerage deals in order to find brokerage bonuses or free trades. I also like teaching young people how to save and invest for their future. Back in 2008 Sharebuilder had a promotion, where investors who put $50 in their account and executed one trade could earn a $50 cash bonus. I shared this deal with a young dividend investor who invested $40 in a real estate investment trust called Realty Income (O), which pays monthly distributions to its shareholders. The company was well known for having raised distributions every quarter since going public in 1994. He paid a $4 commission on the trade and as a result generated a $0.20/month income stream from this small investment. He subsequently received the $50 cash bonus in a few weeks, which meant that he was essentially playing with the house's money. The investor did sign up for the dividend reinvestment program, which meant that each month these $0.20 deposits were automatically reinvested into additional shares. The company has another $50 promotion right now as well. I had forgotten about this account, until I spoke with this investor when I was preparing their taxes for 2010. I noted that their monthly distributions had increased to $0.25. This was a cool 25% increase in dividend income for just 3 years, during one of the worst recessions since the Great Depression.123... Read more