When you invest in stocks or funds, one of the benefits is the potential for dividends. Dividends are a portion of a company's profits that are distributed to its shareholders. Some investors seek out stocks with high dividend yields to generate income, while others simply reinvest dividends to buy more shares and compound their gains over time.
If you use TD Ameritrade as your brokerage, you'll likely receive dividends from the investments you hold in your account.
So, what happens to these earned dividends with TD Ameritrade? Let's take a closer look.
TD Ameritrade doesn't charge any fees for receiving or reinvesting dividends. When you receive a dividend payment, it will be deposited into your TD Ameritrade account automatically. You can choose to have the dividend paid out in cash. You can also opt to reinvest the dividend to purchase additional shares of the stock or fund that paid the dividend.
Reinvesting dividends can be a powerful strategy for long-term investing. By reinvesting dividends, you can take advantage of compound growth.
Here's an example. Let's say you own 100 shares of a stock that pays a quarterly dividend of $0.50 per share. If you choose to reinvest those dividends and buy additional shares, you'll own more shares and receive more dividends the next time around. Over time, this can lead to significant growth in your portfolio.
Enabling dividend reinvestment is actually pretty easy. To set it up,you'll need to log in to your account and navigate to the "Dividend Reinvestment" tab. From there, you can select which securities you want to reinvest dividends for, as well as the type of dividend you want to reinvest (cash, stock, or mutual fund). You can also set up automatic reinvestment so that all future dividends are automatically used to purchase additional shares.
If you choose not to reinvest your dividends, they'll be held in your account as cash. You can use this cash to purchase other investments, withdraw it from your account, or simply let it sit there until you decide what to do with it.
It's worth noting that TD Ameritrade offers a variety of dividend-paying investments, including individual stocks, mutual funds, and exchange-traded funds (ETFs). You can view your dividend payments and history by navigating to the "Balances" tab in your TD Ameritrade account and selecting "History."
One thing to keep in mind is that dividends are typically taxable as income. When you receive a dividend payment, TD Ameritrade will issue a Form 1099-DIV to report the income to the IRS. You'll need to report this income on your tax return and pay taxes on it accordingly.
In summary, earned dividends with TD Ameritrade are deposited into your account automatically. You can choose to reinvest them or receive them as cash.
Reinvesting dividends can be a powerful strategy for long-term growth, and TD Ameritrade makes it easy to set up automatic reinvestment. Of course, you can withdraw them from the account if you wish. Dividends are a great form of passive income. Many investors choose to invest for this reason alone.
Keep in mind that dividends are typically taxable as income. So, you'll need to report them on your tax return and pay taxes on them accordingly.
By understanding how dividends work and how to manage them with TD Ameritrade, you can make the most of your investments and work toward your financial goals.
This article was generated using automation technology, and thoroughly edited and fact-checked by an editor on our editorial staff.