Ask a Fool: When Should You Not Reinvest Dividends?

Dividend stocks have gotten more popular than ever as a source of income, but what if you don't need the cash that dividends provide? Reinvesting dividends often makes a huge difference to your long-term performance, but there are cases when it's the wrong move.

In this installment of our "Ask a Fool" series, Fool contributor Dan Caplinger answers a reader's question about when you shouldn't reinvest dividends. Dan notes that reinvesting dividends can work out badly if a stock stumbles, and so you should closely evaluate each dividend payer in your portfolio to see whether dividend reinvestment is appropriate. He also gives some guidelines for other situations when you should think twice about reinvesting your payouts.

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The article Ask a Fool: When Should You Not Reinvest Dividends? originally appeared on Fool.com.

Fool contributor Dan Caplinger owns warrants on Bank of America. The Motley Fool owns shares of Bank of America and Citigroup. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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