Some companies offer Dividend Reinvestment Plans or DRPs. Investors who take up this option forgo the standard dividend cheques. The main advantage for ‘small’ investors is that there is no brokerage or administration fee associated with the purchase.
In this way, an investor can steadily build up his or her holding over a period of time. The downside – for me – was all of the extra paperwork when I sold the stocks to determine capital gains tax. Another negative, for my part, is that one agrees to buy the shares without knowing the price.
I treat my dividends and any new cash in the same way. I like to accumulate sufficient cash to make a share purchase cost effective. I then use my measure of exuberance – which I publish each week on my website – to look for sectors that are cheap.