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How to put your dividend income to work for you

by , 25 August 2014

As an income investor, you're looking to invest in the best dividend paying stocks. You want to build a portfolio of shares that, over time, increases your dividend pay outs.

But do you have a plan to make your dividends work best for you? Unless you need your dividend income to live off, what should you do with it?

There are two ways that you can make your dividend income work best for you.

Read on to find out what these strategies are…

Dividend income strategy #1: Reinvest your dividends

When you receive your dividend payments, you could opt to buy more shares.

This has two main advantages…

Firstly, if you reinvest your dividends to buy more shares, the number of shares you own will grow. Over time, you should benefit from a capital gain as the price of share grows.

Secondly, this means the number of dividends you receive also grows. This means you can buy even more shares with your dividends.

This strategy lets the power of compounding works its magic and grow your returns over time.

Dividend income strategy #2: Tuck your dividend income away

Instead of just spending the dividend income, put it into an allocated account and don’t touch it.

Over time, the interest will grow as your balance grows. You will earn interest on your interest. Then you can let the power of compounding work its magic and watch your savings account grow.

This strategy can also be useful if you want to be able to easily access the funds if you need to without having to sell any of your shares.

So there you have it, how to put your dividend income to work for you.

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How to put your dividend income to work for you
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