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1.
With a dividend reinvestment plan (DRIP) for stocks, what happens to reinvested dividends?
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They purchase additional shares of stock for you. DRIPs will actually buy additional shares for you; this is a way of investing on autopilot.
2.
Why is an economic moat important for a dividend-paying firm?
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Both of the above. Moats are critical both for the sustainability of a dividend and for its growth potential.
3.
Which of the following is not a benefit of a DRIP?
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It pays double the regular dividend. DRIPs encourage long-term investing, and because the dividends are reinvesting regularly, investors may benefit from dollar-cost averaging. However, DRIPs respect the existing dividend rates.
4.
What are the two components of total return?
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Dividends and capital gains. Total return includes both price appreciation (capital gains) and income (dividends).
5.
When are taxes on an investment's dividends normally due?
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In the year that the dividends occur. Dividends are immediately taxable. If they are earned in a tax-deferred account, then they will be due years in the future, but this is not the normal situation.