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Hey, where did those 4 cents come from?

Hey, where did those 4 cents come from?

I logged into my Sharebuilder account to get my latest balance, and noticed that there were 4 little cents hanging out in the money market fund there. I wondered where those came from, since all of my money should have been invested in various stocks already. Or so I thought. A couple of clicks gave the answer.

Dividends.

I’d forgotten about dividends.

Which is kind of silly, since many of the stocks I bought do pay dividends. Oh well, it was a pleasant surprise to receive a dividend, even if it was only a 4 cent surprise at this stage.

That did get me thinking though, what are the tax consequences of receiving dividends? Do I have to track them specially? If I reinvest them, are they treated differently? I hit up the IRS web site, which told me that I’d essentially just better keep track of everything about them so that I can report them correctly. Here are the links I checked, if you’re interested:

See Also

Dividend Reinvestment
Topic 404 – Dividends

Time to set up some more file folders for tax purposes.

View Comments (2)
  • Ah yes, dividends. The little paybacks that keep on giving.

    I love dividends, even though I have to keep track of them and pay taxes on them.

    Why? Because, over the long haul, they really increase my returns. Especially if you reinvest the dividends into buying more stock. This way, the dollar cost of your stock decreases. And I’m talking the real long haul – years, not days or weeks or months.

    To show just how powerful dividends can be, here’s some info that I found in an article by John Waggoner on USAToday.com from 2001 (OK, it’s old. But it still shows the power of dividends.) Here’s the paragraph that really caught my eye:

    “In fact, you’d be silly not to look at dividends when you invest. Dividends are an enormous part of the stock market’s return over time. The Standard & Poor’s 500-stock index has risen 1,160% in the past 30 years. Toss in reinvested dividends, however, and you have a 3,521% gain.”

    That’s amazing.

    So, thanks for reminding us of dividends today. This great post. I dig your site. Keep posting.
    Bill

  • Dividends are what I would love to live off of someday. But until that cold day in hell arrives its part of what my mutual funds pay out. For me everything is put right back into the stock (often called a DRIP – Dividend Re Investment Plan I think). For the handful of stocks that I still own I’ve managed to use this to get myself a bunch of essentially free stock.

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