Thursday, January 7, 2016
Dividend Reinvestment Program (DRIP)
I've enabled Dividend Reinvestment Program (DRIP) on my other brokerage account. To explain DRIP, I'll use a real example from my Apple stock.
On 11/13/14, Apple paid out $0.47 per share as a dividend. At that time I had 13 shares of Apple stock. 13 shares x $0.47/share = $6.11. For that quarterly dividend, Apple paid me $6.11. Since I have DRIP enabled, this $6.11 bought more Apple stock (It reinvested the dividends).
The price of Apple stock that the dividends were reinvested at was $113.8525/share. So $6.11 / $113.8525/share equals 0.054 shares. After this DRIP, I had 13.054 shares of Apple.
At the next time a dividend is paid, I still get $0.47/share. So 13.054 shares x $0.47 = $6.14. The previous quarter I was paid $6.11, and the next quarter I was paid $6.14. As long as the dividend amount isn't decreased, and I stay enrolled in DRIP, the amount of money paid out to me in a dividend will increase every quarter.
Because of DRIP, I currently have 13.276 shares of Apple. Apple will probably pay a dividend of $0.52/share in February. So 13.276 shares x $0.52/share = $6.90. There is one positive thing about the stock price going down, and it's that I will buy more partial shares of Apple in February.
The stock price ended today at $96.45. The February dividend of $6.90 / $96.45/share = 0.072 shares. If Apple was at $115/share, then I would get $6.90 / $115/share = 0.06 shares.
This was a lot of numbers, but I hope it makes sense. I have an exit strategy for Apple in mind, and I hope I can execute it sooner rather than later. I want to bring this money over to my Robinhood account. For now, I am ok with getting more partial shares of Apple through DRIP.