Many known brokers have an interesting dividend fund package. For an investor who holds a stake with any of these brokers, it is important to know where your dividends go. This helps you decide what to do with your dividend in line with your investment goals. So where do your received dividends go?
Dividends, by default, go into individual accounts as cash. However, you can also activate a reinvestment plan which will automatically reinvest your received dividends in more stock of that company instead of leaving it as cash.
In this article, we will look at how Robinhood, Fidelity, TD Ameritrade, and M1 Finance handle dividends.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
What Happens with Dividends On Robinhood?
Robinhood processes your dividend automatically as cash dividends and credits them to your account by default. When you subscribe to a dividend reinvestment option, it automatically reinvests the cash from dividend payments using a dividend reinvestment-enabled plan.
When you purchase a company’s stock on Robinhood before the ex-dividend date, you will qualify for the dividend payment. Even if you continue to hold your shares after the ex-dividend date or sell them on the ex-dividend date, you will still be eligible for the dividend payment.
Robinhood gives you two options for what to do with your dividends which are already captured above. A lot of investors go with the option to reinvest the dividends in most cases. We will look at how to reinvest your dividends in Robinhood.
How does Robinhood’s Dividend Reinvestment work?
Robinhood provides you with a stress-free approach to reinvesting the dividend payment back into individual stocks or ETFs in the company that has issued them. This is a huge advantage for long-term investors who wish to capitalize on compound interest.
With the Robinhood app, you just have to turn on the Dividend Reinvestment plan. For you to use this plan, you will have to enable the purchase of fractional shares.
With Robinhood, any dividend-paying stock or ETF that supports fractional shares is qualified for a dividend reinvestment plan.
Fractional shares dividend payments will be calculated based on the fraction of shares owned, then approximated to the closest penny. Robinhood then reinvests your dividends on the trading day after the pay date for dividends. You will also get a notice to this effect.
FYI: The best way I've found to invest is through M1 Finance. It's free and you even get an instant line of credit and 100$! Have a look here (link to M1 Finance).
How Do you Get Paid Dividends On Fidelity?
Fidelity runs a package that gives room for many different funds that create a quick and steady income for their buyers, in the form of dividend mutual funds. With these, you can invest to grow your money for a long term or short term duration and in addition to receiving payments of dividends regularly.
Fidelity offers a dividend reinvestment plan for both securities (stocks and ETF) and mutual funds. At the broker, almost 6000 securities are qualified for dividend reinvestment plans.
The default setting for dividends gotten from mutual funds in Fidelity is to reinvest unless the customer changes it. The stock dividends default setting is to pay cash to the customer.
To subscribe to the dividend reinvestment plan for stock on Fidelity, you will have to follow these instructions.
- In the main menu on the platform, click on “Accounts & Trade”
- Click on “Update Accounts/ Features”
- Then pick “Dividends and Capital Gains”
The list of your investment will come up with an option to update how you want your dividends and capital gains to be handled for both running and future investments.
Does Fidelity Charge Dividend Any Reinvestment Fee?
To use the automated dividend reinvestment plans, Fidelity does not charge any fees or commissions. This applies to stocks, ETFs as well as mutual funds which are not restricted to Fidelity’s family but extend to other families like Vanguard, Charles Schwab, and others.
What Does TD Ameritrade Do with Dividends?
Like every other brokerage, TD Ameritrade allows you to either cash out your dividends or reinvest them. Investors on TD Ameritrade can subscribe to the broker’s Dividend Reinvestment Plan. There are no service fees for this.. It can be used for stocks, exchange-traded funds (ETFs), and several American Depository Receipts (ADRs).
To subscribe to the broker’s Dividend Reinvestment Plan services, select “My Account” at the top of the TD Ameritrade website. A drop-down menu will appear, then you choose “Dividend Reinvestment”. Under this section, you will be provided with financial advice on how best to reinvest cash dividends.
Under ” Stock and ETF dividends” you will see the “Enroll/Edit” column. On clicking, you will be directed to an enrollment page. Here you can customize your investment preference.
The broker normally takes three working days to finalize a Dividend Reinvestment application. After editing specific securities or enrolling an account, it might be declined at a later day.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
What Happens with Dividends On M1 Finance?
It has become popular among investors to invest their dividends. The idea is that you buy stocks that give you dividends, reinvest them and watch your money appreciate.
M1 Finance is a novel, compensation-free brokerage that dividend investors are running into. That’s because of the automation features. This makes it ideal for dividend reinvestment and attracts passive income to investors.
The question of what happens with dividends on M1 Finance has been a frequent one.
Here is a brief answer… All the dividends in M1 Finance remain as cash in your account until it amounts to $10. Once it gets to this amount, M1 Finance will reinvest it automatically into your pie. This investment is done across your entire portfolio at no extra charge.
This makes it possible for you to leverage the power of compounding to build wealth without selling your original shares.
If a dividend paid increases the cash balance in your portfolio beyond $10, the cash comes back to your portfolio. It will be used to purchase stocks you are underweight in.
For example, let’s say that your pie is a combination of 50% Boeing and 50% General Electric stock. After one month, you could have 55% Boeing and 45% General Electric stock due to the difference in performance.
If Boeing pays a dividend that pushes your account beyond $10, it will go to General Electric stock to maintain the 50/50 split. This is called Portfolio Level Dividend Reinvestment Plan as opposed to the Stock Level Dividend Reinvestment Plan which returns the entire dividends to the issuing stock only.
M1 Finance investors receive the tax form 1099-DIV for all dividends paid. Dividends are taxed like ordinary income but they are qualified.Qualified dividends are taxed differently. They are taxed at the long-term capital gains tax rates.
You can learn more about M1 Finance and other brokers I recommend in this page.
ALSO: Small-cap equities can add a lot of upside to a portfolio while mitigating risks. Recently, I've discovered Mainvest's investment platform which makes it easy to invest in small and local businesses with returns of 10-25%. Take a look here (link to Mainvest).
All in all, your dividends remain with you and most brokers even let you choose whether to keep them as cash or reinvest them. So you need not worry, you always get the final say over dividends you receive.
If you have enjoyed this article, please share it with others. If you have any questions, please let me know in the comments and I will answer them as soon as I can.
‘Till next time…
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.