Every month I take an hour or two to create a dividend watch list where I attempt to find undervalued dividend champion stocks, but after I purchase my particular lot for the month it is set on autopilot until I decide to sell. It was during a review of what, if any, positions I should really started to think about the topic of *why* I am reinvesting my dividends automatically.
First and foremost, lets put it on the table we are not talking about a lot of money and I think that is why it has been so easy to basically ignore this topic/decision:
For example, for 2014 that amount was $1,104. That just isn’t a lot, but that is a terrible reason to ignore efficiency, right? If I am not willing to put new money into a certain stock because it is overvalue in my opinion, why am I allowing dividend reinvestments to occurs without even thinking about it?
Pushing Me Towards this Decision
For the first time this year I took a look at what may be egregiously over valued thinking, and thus, my capital could be better deployed elsewhere. I came across Coca-Cola, KO, it is one of my smaller positions only buying 2 ~$500 lots. Currently, it is trading at a PE of 24, very close to the highest PE it has traded in the past 10 years, and nearly 5 times Graham Number (all information taken from GuruFocus on the night of 3/2/15).
You may need to zoom in to see the picture, but despite not wanting to invest in the company in over a year I have allowed 4 quarters of dividend reinvestment. Obviously an empire is not built on $32, but like I said that was two extra $500 lots I could have bought last year in a company I considered undervalued.
The Risk in Not Reinvesting Dividends
I think the biggest risk is to remember that the reinvestment of dividends is not part of my monthly contributions to the account. If I am putting away $500 a month into the account every month I have to make sure that the dividends are on top of those purchases. I don’t think it’ll be too difficult to just add whatever I received in the month before into the next purchase.
I think this very small risk is worth canceling my automatic dividend reinvestments for this particular account.
UPDATE: I HAVE TURNED FREE DIVIDEND REINVESTMENTS BACK ON