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A Note On DRIP (Jan 5, 2012)

Jan 5, 2012:

I think DRIP is good for many small investor. A point against DRIP for dividend investor is that re-invested money are dead for typically 3 months (except few companies with mothly dividends), while money invested in another company might work early (e.g. if company X-date is tomorrow). Similar approach is sometimes named "dividend capture" investing but it is not for everybody.
I rather use dividends to buy a new company then re-invest. Of couse dividends should be big enough and broker fees play against this approach

March 25, 2013:

Well I think we have nice contadiction between DGI from a mature company and DRIP in the same company. Let me explain:

A a mature company generates a lot of cash. The mature company BoD conclude that cash retained beyond company needs is not a good idea. This is the reason it pay dividends to keep management from making poor decisions with "pets" projects.

Now an investor in such mature company has choice to DRIP money back into the company or invest the money elsewhere.

Actually BoD signals that an investor can utilize cash better than the company management. While a rational investor should chose DRIP? For a small investor DRIP might be good choice because it helps to avoid fees /but reduce diversification/. For not so small investor I do not see rationality for other investors in DRIPing back to a mature company.

Any comment?