How should I be using my dividends?

I have a portfolio containing $800,000. I do not need to take any money out for living expenses. My wife and I have Social Security and pensions of $110,000, plus rental income clearing $35,000 a year. Should I be taking my dividends in cash or should I re-invest?

Social Security, Investing, Asset Allocation
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6 days ago
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Personal preference.

Our preference as money mangers is to take the dividends in cash, as the tax impact is the same either way, then use the accumulated dividends over the year to actively mange the ongoing allocation of the portfolio.

One of the primary reasons behind dividend reinvestment programs was to avoid extremely high commision rates prevelant when executing odd lot trades. Today, with commision costs of about $5.00 per trade, that value proposition is diminished.

If your portfolio's average dividend rate is between 2 and 3% per year, you can use that cash flow as a tool to add a meaningful position to your portfolio each year at the price you want, and use that tool to better manage your diversification.

Hope this helps,

Steve

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