Tuesday, April 25, 2017


Just read an interesting article by Warren Buffett on dividends.  He explained Berkshire's policy on dividends, specifically why they do not pay a dividend and how you could generate "dividend like" income by selling a percentage of shares each year.  A very interesting article.  However, it did not answer my question on whether or not Berkshire reinvests dividends they receive on additional shares of stock or do they keep the cash to reinvest elsewhere.

Generally I choose to reinvest all dividends in additional shares of stock.  However, at times it seems contraindicated to do so.  Say you own a large block of stock in a company paying out nice dividends.  Perhaps you bought the shares at a very low price, as I did with UVE.  Now the price is up 100 - 200%, do you still reinvest dividends?  Doing so increases your cost basis, since you're buying new shares at the much higher price.  If you choose to continue holding the stock as I have with UVE, it would seem prudent to take the dividends in cash.  (In this case, I'm still reinvesting in UVE.)  

I mentioned in a post not long ago my strategy for avoiding total losses by taking cash dividends on some of the high risk stocks or funds.  When you collect the dividends in cash, even if the stock price goes to zero, you don't have a total loss because you've still got the cash.  So if you take that a little further, the cash you collect from some of your more questionable investments can be used to help purchase more shares of core stocks for your portfolio.  I've used this many times, collecting cash dividends from current holdings to help pay for new investments or additional shares of low volatility stocks with increasing dividends.  I figure this way I'm still reinvesting dividends, just not always in the stocks that paid them.

At any rate, I must be doing something right.  My monthly dividend income continues to increase every month, even though I've had some holdings cut their payouts.  I always hate to see dividend cuts, but as long as the return is still acceptable and cutting the dividend seems to be the right thing for them to do, I don't mind holding on to these shares.  If they stop paying dividends, I sell immediately.  I don't want any stocks unless they pay some kind of dividend.

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