Low Price Benefit for Dividend Reinvestment

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Back in April, Apple gave shareholders yearning for a bigger cut of Apple’s profits something to be happy about. Specifically,Apple a few weeks ago announced that it was upping its quarterly dividend by 15%, raising it from $2.65 a share to $3.05 a share.  That decision by Apple, when coupled to the drop in the Apple stock price this spring, can produce some nice gains for some stockholders.

What’s that?  How can a drop in stock price be good for stockholders?

Let’s go through the math.  Assume that a stockholder has 1,000 shares of Apple stock.  When the stock price was $700 and the old dividend rate was $2.65 per share per quarter, a stockholder who reinvested dividends ended up with 3.7857 additional Apple shares.  However, with the stock price at $435 and the new dividend rate of $3.05 per share, that same stockholder will get 7.0115 new Apple shares.  That is 85% more new shares than a stockholder reinvesting dividends would have had under the old system!  That sets up a stockholder for some nice gains – assuming that the stock price recovers.

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