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Written by Cari Scribner on March 26, 2023
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What Happens With Dividends On Robinhood?

Dividends are one of the most rewarding parts about investing.

By providing a consistent income stream, it's even possible to generate enough cashflow to allow you to retire early with dividends.

By picking winning dividend stocks, you can benefit from the growth of the share price over time while being rewarded with regular payments in the form of dividends.

Or, you could take a more passive approach and invest in a high dividend yield index fund. This gives you built in diversification.

Robinhood is one of the most popular investing apps available today. You may be wondering how dividends are handled with Robinhood. Here's what happens when you earn dividends in your Robinhood account as well as where they end up going!

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What Happens With Dividends On Robinhood?

If you own dividend stocks, you will likely earn a dividend on a quarterly basis. Most companies and funds pay out dividends at this frequency. However, some dividend stocks such as "O" pay them out every single month.

You have two options for what to do with dividends when they become available to you on the Robinhood platform:

  1. Take the cash payment
  2. Reinvest the dividend

There’s always the option to pull the money out of your account as cash. But ask yourself, is there a chance you will blow it all on Friday night dinner and drinks? Is it even enough to cover that?

The wiser option in many cases is to reinvest the money.

Robinhood has set up a functionality to reinvest your dividends automatically if you wish. However, by default, your dividends will go to your cash balance within your Robinhood account. You may want to consider reinvesting to maximize compound interest.

Dividends will be paid at the end of the trading day on the designated payment date.

Robinhood's Dividend Reinvestment (DRIP)

If you use the dividend reinvestment feature, dividends earned will be reinvested back into the issuing stock. Robinhood will purchase fractional shares of the stock or ETF, so you don't need to worry about the share price.

On the app, all you have to do is turn on Dividend Reinvestment Plan or "DRIP" for short.

Here's how to enable dividend reinvestment on the Robinhood app:

  1. Go to the account tab by clicking on the person icon
  2. Tap on the 3 bar icon in the top left
  3. Click on "Investing"
  4. Scroll down until you see "Dividend Reinvestment"
  5. Tap on "Enable Dividend Reinvestment"

To turn the feature off, you would follow steps 1-4. You would then tap on "Edit Dividend Reinvestment" and turn off the toggle if desired.

You can also turn off dividend reinvestment for certain stocks while leaving the feature turned on for other stocks. When you tap "Edit Dividend Reinvestment," you can switch off the checkmark for certain stocks in your portfolio.

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What Stocks Are Eligible For Dividend Reinvestment?

Any stocks or ETFs eligible for fractional shares are also eligible for dividend reinvestment. 

Dividend payments will be split based on the fraction of shares owned, then rounded to the nearest penny.

Robinhood will reinvest your dividends on the trading day after the dividend pay date. You will get a notification letting you know when your dividends have been reinvested.

At this point, you'll own more fractional shares in that stock and will see a compounding effect on your returns if you continue reinvesting.

Conclusion

You basically have two options when it comes to earning dividends on Robinhood:

  1. You can take the cash and withdraw it or invest it on your own
  2. Or, you can use the dividend reinvestment plan, as long as you have fractional shares enabled

Robinhood’s dividend reinvestment plan is a sound way to put your dividends back to work for your portfolio.

Article written by Cari Scribner

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