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The contents of this post have been updated since it was originally published. Many things have changed since it was written … most notably LOYAL3 (a competitor to Robinhood) announcing they are closing down.
I highly recommend you opening up a Robinhood account if you are an investor in order to take advantage of free trades!
I have been using Robinhood now for well over
a year 2 years to buy (and sell) top notch stocks for our dividend income portfolio. In that time, I have seen several improvements to the electronic trading tool that has made using it a must for building our dividend income portfolio.
While there are certainly some limitations to the tool, the benefits outweigh them. These benefits have allowed my wife and I to save a bunch of time and money building our portfolio.
If you are new to the Robinhood trading tool, here are 10 things you should know about it.
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1. Free Trades on U.S. Stocks
It is free (no commissions) to buy U.S. listed securities through Robinhood. This is a powerful tool for dividend investors just starting out with a small amount to invest.
There is no need to hold off buying shares of your favorite dividend growth stock. All you need is enough funds to buy 1 single share of a stock.
For example, our smallest buy order ever was for 1 share of Omega Healthcare Investors (OHI) for $33.34! This trade would not have been practical in our Fidelity account since our commission would have been
The goal for most dividend investors is to buy and hold quality dividend stocks. However, there are some instances when you may need to sell a dividend stock. If you decide to sell a stock, then there is a very small FINRA Trading Activity Fee per share that is much smaller than most fees charged by online brokers.
Overall, Robinhood provides a great opportunity for new investors to save a bunch of money on commissions and fees.
2. Earning Dividend Income
For those who prefer to re-invest their dividends into new shares, Robinhood does not offer this program yet. Instead, all dividend payments are credited to your account as cash.
We have a few stocks in our overall portfolio (the Money Sprout Index) where dividends are automatically reinvested. For example, dividends earned from Clorox (CLX) and Lockheed Martin (LMT) through our Computershare account are automatically reinvested into new shares of stock.
Any dividends we earn from stocks owned in our Robinhood account are deposited as cash. Since we are constantly adding new capital to this account, we use the combination of dividends earned and new investment dollars to buy new shares of stock.
The only downside of not reinvesting dividends in Robinhood is that you can only buy whole shares. So if we earned $20 in dividends this month and wanted to buy a share of Johnson & Johnson (currently over $120 per share), we would need to wait.
3. Limited Account Types
My wife and I have 3 children and we want to teach them about building their own dividend income portfolio while they are young. This is an important life lesson about money that I think is critical for them to learn as soon as possible.
Unfortunately, Robinhood does not currently offer custodial accounts. Per their Account Types FAQ – they currently do not offer joint, custodial, and IRA account types.
I would personally like to see Robinhood add at least the custodial account type and maybe even the IRA in the future.
4. Available Securities
If you plan to trade options, invest in mutual funds, or foreign stocks – then Robinhood is not for you. They currently do not offer these types of securities to trade.
However, if you are a dividend income investor of U.S. stocks, then Robinhood may be the perfect trading tool for you. As mentioned above, there are no fees to buy stocks through this tool. This is a great opportunity to stretch your investment dollars and put more money to work for you earning income.
5. No Partial Shares
Unlike LOYAL3, another free commission trading tool, Robinhood only allows investors to purchase whole shares of stock. While this may not be important to those who have thousands of dollars to invest, it can be a concern for smaller investors.
For example, let’s say I had $50 to invest each month and wanted to put it into shares of Apple (APPL). Based on the current share price (around
$90 $140 right now), I could only buy 1 share of the stock every other month through Robinhood. On the other hand, I used to buy partial shares of APPL through LOYAL3 each month.
Note – As mentioned already … LOYAL3 is shutting down so partial share trades are no longer an option. However, using this feature at LOYAL3 allowed us to build up 11 shares of Apple (AAPL).
Not offering partial shares is a minor hindrance through the Robinhood app. On the bright side, Robinhood allows investors to buy all the top dividend paying stocks. When they were open, LOYAL3 only offered a small subset of these stocks to trade but does offer partial shares to be bought.
6. No Monthly Plans
Other online brokers
(including LOYAL3) offer monthly investment plans where Robinhood does not. These plans are a nice way to setup recurring investments that will help dollar cost averaging. For example, we built substantial investments in – Microsfot (MSFT), Wal-Mart (WMT), and Target (TGT) through our LOYAL3 account.
We don’t have this option using Robinhood. It is just another minor inconvenience for those investors looking to automate their monthly investments. If you are disciplined and stay up to date on your investments, then logging in and making a monthly purchase shouldn’t be an issue.
Despite no monthly investment plans, I would take a tool that offers free trades on all available dividend paying stocks. Robinhood offers both!
7. Dividend History and App Improvements
One major complaint that I had with Robinhood early on was the lack of dividend history during the month. Normally, you would have to wait until several days into the next month before getting a list of your dividend income earned from the prior month.
With recent updates and improvements to the Robinhood app, you get to see your future dividend income. So now, I can actually see all of the dividends I will be receiving during the current month. This may not be important to some investors, but it is critical to me as we are focused on building our dividend income month to month.
I have found that Robinhood is focused on improving their trading app and listening to their customers. Since their app is the only way to buy and sell stocks, it is crucial to their business to make the Robinhood app as user friendly as possible.
8. No Minimum Balance Required
There is no more excuse for not having enough money to start investing. A new investor can quickly open up an account on Robinhood with no minimum account balance required. All you need is enough funds to purchase a single share of a stock you want to own.
Combine the no minimum balance with zero commission trades and this is a great tool for new dividend growth investors. And that is not even mentioning that you have access to buy most of the top dividend paying stocks.
9. Automatic Deposits
I did say that a minor drawback of Robinhood is that they don’t offer any monthly investment plans. However, account holders do have the option of setting up automatic deposits from a bank account to make ongoing investments simpler.
Investors have the option to schedule deposits into their account weekly, bi-monthly, monthly, and quarterly. This feature can be the perfect opportunity to pay yourself first every month where your funds will eventually be invested into stocks.
10. Easy to Purchase Stock
The Robinhood app certainly appeals to the younger generation. The only way that users can buy and/or sell stocks is using the app. I will say that purchasing shares of a stock takes less than 30 seconds if you know which company you want to invest in.
For example, I recently purchased 10 shares of Archers Daniels Midland (ADM) while taking a break at writing this article. It is a stock that I have been accumulating recently as the share price has been low compared to where future dividend growth is projected.
Anyways, I had funds in the Robinhood account from our tax refund portfolio. I decided to pick up 10 more shares of the stock recently and it was quick and painless. I logged into the account, selected the ticker symbol ADM, put in 10 shares to buy, and swiped the button. I immediately got a notification that the shares were purchased and then an email came in a couple seconds later stating my order had been filled.
It doesn’t get much easier than that!
Robinhood is an electronic trading tool geared towards the younger generation of investor. The only way for users to buy and/or sell a stock is by logging into their mobile app.
One of the biggest benefits of using Robinhood is that they offer commission free trades on U.S. securities purchased through their app. Income investors can also see their dividend history easily through the app. This makes it a must-have tool for the new dividend growth investor.
The Robinhood app makes buying stock about as simple as possible. Even though the trading tool does not offer dividend reinvestment or partial shares, the zero cost trades more than make up for it.
Robinhood does offer automatic deposits of funds into your account from a bank. However, they do not offer monthly investment plans which is a minor inconvenience.
I would like to see Robinhood eventually expand past their current account types (Cash and Robinhood Instant). Setting up a custodial account for my kids is a priority for our family and I think Robinhood would be the perfect tool for each of them.
There is no more excuses not to start investing as Robinhood as no minimum balance required. So what are you waiting for?
Do you have a Robinhood trading account? What has been your experience using this trading tool?
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