How to Reinvest Dividends in Your LOYAL3 Account
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If you have been following along here at The Money Sprout, then you probably already know we are big fans of putting our money to work.
We have made it a priority to put 20% or more of our income to work for us each month. The goal is to use a bunch of our income to earn even more income.
It sounds a lot easier than it is to complete. But the idea is to consistently invest as much as we can into assets that will produce more income.
Our preferred income tool is dividend stocks. At the time of this writing, we collect over $100 of income each month from our stock investments.
We are on pace this year to earn over $1,900+ in dividends and have a goal to raise it to $3,000 in the next year.
In order to reach our $3,000 dividend income goal, it will require a lot of new capital to be invested. We have been hard at work for a couple months now on investing new money.
Another thing we are doing in order to earn more income, is to reinvest our dividends that we currently earn. So all of the $1,900+ we are earning this year will be investing back into more stocks.
How Do We Reinvest our Dividends?
The simplest way to reinvest your dividends is to setup a dividend reinvestment plan (DRIP) through your stock broker. Over half the stocks we currently own in our portfolio uses a DRIP.
These dividend reinvestment plans are convenient and usually don’t cost any commission. So anytime you receive a dividend from a stock, the funds are automatically reinvested back into additional shares of the same stock.
It can’t get much easier than that … although there are some limitations to DRIP’s.
The other stocks in our portfolio that don’t use DRIP are held in brokerage accounts that don’t offer it. LOYAL3 is one such broker that doesn’t offer dividend reinvestment plans.
So how do we reinvest our dividends from shares we own in our LOYAL3 account? There are a few ways that you can still put your LOYAL3 dividends back to work earning more income.
How to Invest LOYAL3 Dividends
First of all, I think LOYAL3 is a great tool for new investors. For as little as $10, you can buy stock from a list of some really great companies.
Plus there are zero commissions when you buy or sell a stock from your account. There really is no excuse anymore about not having enough money to invest.
While I think LOYAL3 is awesome, one of the features the tool does not offer is dividend reinvestment plans.
So without DRIP, how do we put our income back to work?
There are a couple of options available.
1. Buy Partial Shares with $10 or More
The only requirement of buying stock using LOYAL3 is a minimum investment of $10.
Provided they offer a stock you are interested in purchasing, you can use your dividend payments to buy partial shares.
Note – LOYAL3 does not have every US dividend stock available to trade. However, they do have a great collection of companies to invest in, which include – Microsoft (MSFT), McDonald’s (MCD), Target (TGT), WalMart (WMT), and even Apple (APPL).
The worse case scenario is that you use your dividends to invest in more shares of the same stock within the account. This is really no different than setting up DRIP, except that you are required to take action to purchase the shares instead of it happening automatically.
Unlike many other brokerage accounts, LOYAL3 (and Robinhood) do not automatically reinvest your dividends back into new shares of stock.
If you were being charged a commission to buy stock from LOYAL3, then this could be a problem. But that isn’t the case at all.
That is what makes LOYAL3 so great … they don’t charge any commissions!
2. Build Your Cash Balance
Another option is to let your dividends build up the cash balance in your LOYAL3 account. This is what happens by default anyways if you don’t take any action.
If you have any monthly investment plans setup within your account, they will automatically draw from your cash balance first. The remainder of your monthly investment would then be drawn from your bank account.
So … this is basically a way to reinvest your dividends without having to do anything as long as you setup monthly investments.
The downside of building your cash balance is that you may not be hitting your investment goals in a month when you have lots of dividends coming in.
For example, let’s assume you want to invest $150 in Target (TGT) each month (which is actually one of our current monthly investments). Now let’s also assume you earned $50 in dividend income the last couple of weeks (we just earned had our $47.56 this month).
When your account invests in TGT through a monthly plan, it will pull the cash balance first (in this case $50). Then it will pull another $100 of new money from your bank account.
That extra $50 of new money would never get invested. It would require you take action and invest on your own.
One of the best tools for new dividend growth investors to use is LOYAL3.
Just like Robinhood, LOYAL3 is a commission free broker that can be used to save on fee’s when investing.
At the time of this writing, over 30% of the stocks we own in our portfolio are held in our LOYAL3 account. We love to take advantage of buying partial shares of stock with no commissions or fees.
The one important feature for many dividend growth investors that LOYAL3 does not offer are DRIP’s.
Fortunately, there are several options available for smart investors wanting to put their income back to work earning more and more income.
Just remember, the most important thing is to keep investing that income. Regardless of the tools you decide to use … make sure you put that money back to work.
Do you use LOYAL3 as a broker? What do you do with the dividends that come in?
Full Disclosure – At the time of this writing, we owned shares in the following stocks noted in this post – AAPL, MCD, MSFT, TGT, and WMT. The material above is not a recommendation to buy. Please do your own research on a company before deciding to invest.