This Dividend Investing Strategy Deserves a Second Look

Amy Arnott, portfolio strategist for Morningstar Inc., discusses how a popular dividend investing strategy works, and who would or wouldn’t benefit from it.

On this episode:
• Let’s focus on when dividend reinvesting works as a strategy and when it does not. Who should consider reinvesting dividends?
• When shouldn’t an investor reinvest their dividends?
• Are there any differences between reinvesting dividends in a taxable vs a tax-deferred account?
• What types of dividends are taxable and non-taxable?
This part of the episode includes a correction: A response about which dividends are taxable versus nontaxable should have said, “If you're in a bond fund, most dividends would be taxable unless you’re investing in Treasury bonds, which would normally be exempt from state and local taxes.” We incorrectly said federal taxes.
• How long you’ve owned a dividend-paying stock matters when it comes to taxes. Can you explain the differences between qualified and non-qualified dividends?
• What kind of record-keeping does reinvesting dividends require, and how does reinvestment affect the cost-basis?
• How are considerations different for stock dividends vs fund dividends?
• What’s the final takeaway for the audience about dividend reinvestment?

Read about topics from this episode.
When to Reinvest Dividends (or Not) (morningstar.com/portfolios/when-reinvest-divid…)
These 4 Dividend ETFs Strike the Right Balance for Income Investors (morningstar.com/funds/these-4-dividend-etfs-st…)
10 Top Dividend Stocks for 2025 (morningstar.com/stocks/10-top-dividend-stocks-…)
13 Elite Companies With Fast-Growing Dividends (morningstar.com/stocks/13-elite-companies-with…)
What Are Dividends? (morningstar.com/investing-definitions/dividends)
The 10 Best Dividend Stocks (morningstar.com/stocks/10-best-dividend-stocks)
The Best Dividend Funds (morningstar.com/funds/best-dividend-funds)
What Makes a Great Dividend Fund? (morningstar.com/funds/what-makes-great-dividen…)

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Market Volatility: 4 Key Factors to Track in Q3 2025 (youtu.be/5oBnvJG00gI?si=r-gzGB9eLq6QVeyV)
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Read what our team is writing:
Amy C. Arnott (morningstar.com/people/amy-c-arnott)
Ivanna Hampton (morningstar.com/people/ivanna-hampton)

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