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!
If you own most dividend stocks, you will earn a dividend on a quarterly basis. Most funds pay out dividends at this frequency as well. 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:
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. By default, your dividends will just go to your cash balance within your Robinhood account. However, you may want to consider reinvesting to earn compound interest.
Dividends will be paid at the end of the trading day on the designated payment date.
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:
Keep in mind, however, that Robinhood requires you to enable fractional shares to use DRIP.
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.
You basically have two options when it comes to earning dividends on Robinhood:
Robinhood’s dividend reinvestment plan is a sound way to put your dividends back to work for your portfolio.