Robinhood has attracted a lot of new investors in recent years. It is one of the most popular investment platforms. It has grown its user base by a lot. You might be one of them. One question that often arises is how to reinvest dividends on Robinhood. Some companies or individual stocks offer dividend payments regularly. You might have heard about them being referred to as dividend stocks. It is up to you what you do with them. One common strategy is dividend reinvestment. It means the dividend you are getting paid gets automatically reinvested into the same stock at the current stock price. This results in fractional shares, a default feature the Robinhood App supports. By doing that, you gradually increase your initial investment.
If you are new to the stock market, we have some excellent book suggestions in our “5 Must Read Books for Beginner Investors” guide.
Do you like Robinhood and want to get the most out of it? Take a look at our other articles about Robinhood:
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- How To Pay Your Tax On Robinhood Stocks – Investor Guide
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- How do you disable Margin on your Robinhood Account
- When Does Robinhood Send 1099 Tax Documents To You?
Are Dividend-Paying Stocks better than Stocks without a Dividend?
Dividends are like a bonus that the company gives you for owning their shares. It’s extra money in your pocket. If a company pays dividends, it’s usually a good sign. It means the company is making money and is healthy enough to share some of that money with the shareholders.
In our “5 Reasons Why We Love Dividend Stocks for Long-Term Investment” guide, you can learn more detailed reasons why dividend stocks are an excellent financial product.
Not every dividend-paying stock is of equal quality. Make sure the company does not take on debt to pay a dividend. That can be a sign of weakness and, thus, a risk for your portfolio. You should also not only focus on a high dividend yield. How well the company behind the stock is managed will have a far more significant impact on your long-term results.
But not all good companies pay dividends. Some prefer to use their profits to grow their business, pay off debts, or fund new projects. So you can’t say that a Stock is better than another solely based on it paying a dividend.
What are the Benefits to Reinvest Dividends?
A dividend reinvestment plan is a hands-off approach often used by long-term investors as part of their long-term approach. It does not need a lot of management from you. Dividend reinvestment helps you to let all the money in your Robinhood account work at all times. The next time dividend payouts occur, they will be immediately reinvested at the current share price.
If you believe in a company and its mission, you can grow your position and acquire additional shares without investing additional money. It’s a great way to achieve good long-term returns with your portfolio. Once your total dividend income of your investment portfolio becomes larger, you can also stop dividend reinvestment and instead invest them elsewhere. It’s easy to change in a moments notice.
Do you need a Robinhood Gold Subscription for Reinvesting Dividends?
The short answer is no. You do not need a Robinhood Gold subscription in order to use the dividend reinvestment feature in the Robinhood app. This feature is available to anybody, subscribed or not.
Do ETFs and Mutual Funds also pay a Dividend?
You may also receive a dividend if you own shares of an ETF (Exchange-traded funds) or Mutual Fund. But only if the ETF or Mutual Fund holds companies offering cash dividends. You are getting your dividend payments either monthly, quarterly, or annual.
If you are thinking about ETFs or Mutual funds, check out or guide “ETF vs Mutual Funds: Which is Right for You?“. It contains valuable knowledge to help you on your decision.
It’s important to know that not all dividends are taxed similarly. There are 2 different types of dividends: Qualified Dividends and Nonqualified Dividends.
- Qualified Dividends: You must pay capital gains taxes on dividends designated as qualified (0%/15%/20%). There are holding restrictions in place for dividends to qualify. You must hold the stock or ETF for at least 60 days during the 121-day period that begins 60 days before the ex-dividend date. Actively trading an ETF will very likely disqualify your dividend earnings.
- Nonqualified Dividends: Any dividend not designated as qualified falls into this category. You will have to pay taxes at the ordinary income rate. This rate is usually higher and depends on your total taxable income.
These dividend rules encourage you to hold your stocks for the long term. It’s a good idea to check any trade’s tax consequences before you do it. But also keep in mind that dividend-paying stocks come with tax consequences. You are generating a dividend income with them, even if you choose to reinvest your dividend. If you are interested in how to reduce or avoid paying capital gains taxes, read our guide “How To Avoid Paying Capital Gains Taxes On Stocks.”
For retirement accounts like a 401k plan, any gains made through dividends are not getting taxed. Your 401k plan is a tax-deferred account. This means you’ll pay taxes on the money you take out during retirement. You can find more information on 401k in our in-depth guide “Is My 401k Good?“.
How do you Enable Reinvest Dividends on Robinhood?
If you decide that dividend reinvestment is right for you, you might wonder how to enable dividend reinvestment in Robinhood. This is actually pretty easy to do. We’ll look at the steps you need to do either in the mobile Robinhood app or on the Robinhood website.
How do you Enable Reinvest Dividends in the Robinhood App?
The Robinhood app is very easy to use. Changing the Dividend Reinvestment setting in your Robinhood account on the mobile version is very easy. Just follow these steps to adjust your dividend reinvestment setting:
- In the bottom menu, click on the Account Tab. (the rightmost icon)
- Click the Menu Icon ≡ on the Top-Left
- Select the “Investing” Menu Item
- Scroll down to the section called “Dividend investment”
- Click the “Enable dividend reinvestment” button
- Follow the instructions on the screen and read the Brokerage DRIP Agreement carefully.
That’s all it takes for how to enable dividend reinvestment on Robinhood for the mobile version.
How do I Enable Reinvest Dividends on the Robinhood Website?
The Robinhood website offers a really nice user experience. Changing the Dividend Reinvestment setting in your web account is very easy. Just follow these steps to adjust your dividend reinvestment setting:
- Open the Account Menu on the top-right
- Click on the “Investing” entry
- Select the “Settings” tab
- Select the “Investing” entry on the left-side menu
- Open the “Dividend reinvestment” entry
- Click on the toggle button “Enable dividend reinvestment” and follow the instructions.
And these are all the steps for how to enable dividend reinvestment on Robinhood for the website version.
Am I able to control Dividend Reinvestment per Stock or ETF?
If you follow the steps above for the mobile app or website, all your dividends are reinvested across the board. Maybe you want more control and disable the dividend reinvestment for certain stocks or ETFs. If that is the case, just go back to the same menu and click the “Edit dividend reinvestment” button on mobile or expand the Dividend reinvestment entry on the website. You can enable and disable the dividend reinvestment for each stock or ETF in the list.
Conclusion for How to Reinvest Dividends on Robinhood
In this post, we discussed some basic knowledge and information about dividends and dividend reinvestment as an investment strategy. We took a look at different types of dividends, like qualified dividends and nonqualified dividends. They all come with different tax rules, so it is essential to know them if you want to make better investment decisions.
I think dividend reinvestment is one of the best ways to invest for average investors. Pair it with an Index ETF or Mutual Fund to get a solid long-term investment strategy. Our guide “ETF vs Mutual Funds: Which is Right for You?” is a great starting point for any investor interested in this topic.
I love dividend-paying companies as part of my strategy. I also don’t really care if the company pays an annual dividend or a monthly one, since I’m a long-term investor anyway. If you focus on dividends as a source of income, though, having regular dividend payments might be more important.
Robinhood is one of the most popular investing apps out there. I like that Robinhood makes it very easy to use dividend reinvestment as part of your investment strategy. The setting is also adjustable on web as well as on mobile. So it does not matter which platform you prefer to use. Both of them allow you to adjust your dividend reinvestment settings. Contact their customer support if you have any issues with your Robinhood account. They are usually pretty fast to help you with any problem you might run into.
The dividend reinvestment feature does not require the Robinhood Gold subscription, so it is available for anyone.
