CHAPTER 9 DRIPs and Direct Purchase Plans
I hope by now you see the wisdom of reinvesting dividends if you're attempting to build wealth for the long term.
Typically, the easiest way to do it is through your broker. Most brokers do not charge commissions or fees for reinvesting dividends. If yours does, find a new one. There's really no reason to pay a fee or commission on such a small transaction.
When you allow your broker to reinvest the dividends for you, all of your portfolio information is in one convenient place.
Not all brokers have the same options available. For example, Schwab and E*TRADE don't allow you to reinvest dividends of foreign stocks that trade on U.S. exchanges called American Depositary Receipts (ADRs). An example of an ADR would be drug giant Novartis (NYSE: NVS). The company is based in Switzerland but trades on the New York Stock Exchange
On the other hand, TD Ameritrade allows you to reinvest your dividends in ADRs.
In my opinion, this is a significant issue. A well-balanced portfolio will include companies located outside the United States. The inability to reinvest the dividends into the stock is a deal killer if you're trying to create wealth through dividend reinvestment.
Scottrade has a unique program called Flexible Reinvestment Program (FRIP). You can't automatically reinvest your dividends in the stock that pays them. Rather, the dividends can be reinvested in any eligible stock or exchange-traded fund (ETF), including those that don't pay ...
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