Can You Automatically Reinvest Dividends in an ETF?

For any brokerage account, whether with E*TRADE, Robinhood, or any other online broker, the default setting is often that dividends are not automatically reinvested. As a long-time customer of E*TRADE since the mid-1990s, I have always had control over how my dividends are handled, and it is usually a simple process if you wish to set up automatic dividend reinvestment.

Setting Up Automatic Dividend Reinvestment

If you’re looking to start or stop automatic dividend reinvestment for a particular position, the process is straightforward. You can do this through the menu options available in most online brokers, such as E*TRADE. Here’s how it works:

Select 'Dividend Reinvestment' from the menu bar. Choose the appropriate account from the list of your accounts. View a list of all positions eligible for dividend reinvestment. Select the position you want to set up for dividend reinvestment by checking the box. Click on the button to start dividend reinvestment. To stop dividend reinvestment, simply uncheck the box and click the button.

Most online brokers operate in a similar manner, allowing you to manage your automatic dividend reinvestment preferences easily.

ETF Support for Dividend Reinvestment (DRIP)

If the ETF you are invested in supports a Dividend Reinvestment Plan (DRIP), you can definitely set up automatic dividend reinvestment. However, this often requires a specific request to your broker, as the broker may need to program the system to make this possible.

Partial Share Trading in ETFs

One of the complexities in automatic dividend reinvestment in ETFs is whether the broker supports partial share trading. This means that if the total dividends result in a fractional share, the broker may or may not allow this to be purchased.

For instance, if your holdings in an ETF with a ticker like XYZ give you 40 in dividends and you’ve elected to automatically reinvest via your broker when the ETF is trading at $30 per share, you can use these dividends to purchase 1 full share with the remainder as cash.

Not all brokers support partial shares; some only allow whole number purchases. If you wish to have your dividends invested in partial shares, check with your broker as to their policies:

Charles Schwab: They are known to convert your dividends into partial shares. Interactive Brokers: They may only reinvest whole shares and may not honor partial purchases.

In summary, whether you can automatically reinvest dividends in an ETF and whether partial shares are supported depends on both your broker and the ETF issuer. Always check with your broker or the ETF issuer to understand the specific processes and capabilities.

Next Steps

If you are dissatisfied with your broker’s policies or are interested in a more friendly broker that supports automatic dividend reinvestment, consider transferring your accounts. This can often be done without much hassle and can significantly improve your investment experience.

For more information on ETFs and how to manage your investments more effectively, keep checking for the latest guides and updates. Happy investing!