Dividends are a win-win for both investors and the company itself.
A dividend is a distribution of profits by a corporation to its shareholders. When a company earns a profit or surplus, it is able to pay out a percentage of this as dividends to investors.
This is a financial perk for investors, and also the company, because this lets them take advantage of hefty tax benefits.
You have two choices for what to do with dividends when Firstrade releases the money to you.
The first – and probably more enticing – option is to pull the money out of your account as newfound cash. But chances are good you will splurge with the money, rather than, say, using it to pay your rent. So you may use it for a night out, tickets to a game, or running sneakers.
The second, and smarter, choice is to reinvest the money and keep it earning for you.
Firstrade has a free, simple system to put dividends back into additional shares of the securities that pay them. It is called a Dividend Reinvestment Plan (DRIP). Not all investing platforms offer this, and it’s a wise idea to consider it. You can get the benefits of compounding returns on your investment without having to place an order, pay a commission, or even purchase a round number of shares through DRIP programs.
When you register, Firstrade automatically enrolls you in the DRIP of all those stocks eligible for the plan. You can also cancel your DRIP registration at any time.
You can enroll specific stocks or ETFs and leave others out. However, the best option is simply to enroll your entire account.
A stock or ETF must have a market price of $4.00 or higher to be eligible for Firstrade’s free DRIP. If a cash dividend is less than one whole share, a fractional share will be credited to the account. The reinvested shares will be purchased at the market price on the dividend payment date.
Fractional shares, which are not offered by every platform, are smaller percentages of a whole share whose purchase price is out of your reach financially. These portions of shares help you make the most of your investment money, diversify your portfolio, and avoid having cash sitting around without earning you money.
Some foreign stocks are also eligible for Firstrade’s DRIP. If you want to receive shares of the security instead of cash, the trade will be settled by the record date of the dividend.
This online investing broker offers zero commissions on stocks, ETFs, options and mutual funds. There is no minimum deposit and are no hidden additional fees. They have free options contracts and no assignment fees for options trades. Firstrade also does not charge a trading fee on any of the thousands of mutual funds it offers.
It is a solid platform offering many of the perks you may be looking for. Designers built Firstrade for beginner to intermediate investors looking for an easy-to-use app. It is also available to international traders.
You can also take advantage of the most up-to-date market news during pre-market and after-market-hours sessions with extended hours trading from 8am - 8pm EST. Firstrade will give you free research from Morningstar.
Dividends are a significant benefit to investing, and shouldn’t be looked at as an unexpected windfall. Smart investors will enroll their Firstrade account in DRIP. The program keeps your money moving in the right direction, and that’s onward and upward.