Reinvesting Dividends – Minimize Cash

Most companies that provide dividends when you purchase their shares also offer an option to reinvest the dividend without incurring a fee. This option is a good way to compound the return. However, the reinvested dividend usually only buys whole shares and not a fraction of a share. The means that some of the dividend is returned as cash. To gain as much of the compounding as possible, selecting the number of shares to hold becomes very important. A guide to doing this is provided as well as a spreadsheet to help in assessing the impact.

What is the Problem?

Dividends are set by the company and are usually stated as a part of a dollar, usually once every 3 months, per share owned. For example, a dividend of $0.50, 4 times a year, per share. If you own 290 shares the dividend will be $145 each quarter. If the share price is $50, then the yield for the year is 4.0% ( = (4×145) / (50×290) ).

The problem is that owning 290 shares means that only 2 shares at a cost of $100 will be bought each quarter and reinvested. This leaves $45 as cash that is not reinvested, or $180 for a full year. This cash will normally sit in the brokerage account earning no interest until there is enough for you to invest in another stock, incurring a brokerage fee.

While this does not seem a lot (it is 3.6 shares a year for the example above), it means that this amount is not compounded like the other shares. Over a year, this loss is about $14, for 2 years it is $52 (one share) and for 5 years it is $350 (7 shares) compared to keeping the cash without any interest being applied.

Why should you pass this up if you could have selected the number of shares correctly in the first place to have almost no cash left over? Specifically, if 300 shares had been bought there would be no cash left over.

Another Problem

Having too many shares so that there is some dividend cash left over also means that this amount is not included in the appreciation of the stock. If the stock increases in value at even the same percent as the yield, it means that the losses given above are doubled. Again this is a shame because the reason for the investment in the first place was probably to get as good a return as possible. The total loss may seem small in a single year, but doing this each year with each stock you own can add up over the years.

Other Problems

The cash left over will change each time any or all of the following happens: 1) the stock price changes, 2) the number of shares increases due to dividend reinvestment, 3) the dividend payout changes. That is, it is likely that there will always be some cash left over.

The exercise is to select a large enough number of shares to have a buffer in case any of the above happens which causes the shares bought by the dividends to be too little leaving too much cash left over.

Fast Way To Calculate Cash Left Over

A simple and fast way to determine if you will have too much cash left over when your dividend is used to buy shares that are reinvested is as follows:

– Guess at how much the Share Price will be when the dividend is applied. Obtain the Dividend per Share amount which is always provided by the company and can be found by searching for it on the internet.

– Calculate how many shares it takes to purchase 1 share with the dividend by dividing the Share Price by the Dividend per Share.

– Use the result of this calculation and divide it into the number of shares you own or want to buy. If the decimal part of the resulting number is not .1 or less, you will have more cash left over than you really need to have.

– This post and the accompanying spreadsheet help you determine how the choice of the number of shares affect the cash left over.

Spreadsheet Format

Click on Download Spreadsheet and open it so that you can follow along with the example below and enter you own values. It is an Excel spreadsheet which requires the Excel application. You can use the spreadsheet to help determine how many shares are needed to minimize the cash left over.

The spreadsheet has the following 13 sections:

  • A) Share Information
  • B) Number of Shares for 1 Dividend Share
  • C) Notes
  • D) Buy or Sell At Current Price
  • E) Summary of Cash as Percent of Share Price for Issue (%)
  • F) Charts
  • G) Shares Wanted – Target
  • H) Shares Wanted – No Increases
  • I) Shares Wanted – Minimum
  • J) Shares Owned – Target
  • K) Shares Owned – No Increases
  • L) Shares Owned – Minimum
  • M) Calculations of Loss using Cash Left Over

Each of the lines on the spreadsheet have a sequential number which are used in the description of each section below.

Each section is described immediately after the following section.

Click on any image to enlarge it in an overlay popup. Click anywhere to close the overlay.


Please read the Disclaimer. In summary, the spreadsheet and this post provide you with general information only and does not give you advice on how to invest or manage your money. They have been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. The spreadsheet and post are provided with the understanding that the provider is not engaged in rendering legal, financial, accounting, tax or other professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

Steps for Deciding on the Number of Shares

Before describing each section, the following are the steps that can be used for getting the number of shares that you want to own that minimizes the cash left over:

  • (1) Enter data into section A in the outlined cells (lines 1 to 10).
  • (2) Using the Cost for 1 Dividend Share of line 13 in section B, decide how many multiples of this amount you want to invest.
  • (3) Using the amount at line 14, section B (Number of Whole Shares Required), multiply it by the multiples from (2) above and enter the number into Section A, line 11 (Number of Shares Wanted).
  • (4) Check line 22 of section E (Summary), Wanted – Target Cash Left Over, for each column, and see if the amounts are what you are willing to accept. Also check line 23, Wanted – Target  which is the Cash as Percent of Share Price for Issue, to see how much of a share you are not able to reinvest. Any over 10% and less than 50% will be in yellow and above that will be in red.
  • (5) Also examine the values in lines 24 to 39 of the Summary for the No Increases and Minimum conditions. 
  • (6) If any of the percentages are too high or the Shares Bought lines drop between an issue, increase the number of Shares Wanted and see the impact. Keep doing this until you get values that you are comfortable with. The objective is to keep the number of shares bought the same across all issues and to keep the cash left over percent below 10%, if possible.

A) Share Information

Enter data into only those cells that are outlined. As the downloaded spreadsheet is empty, there must be some values in at least lines 3, 4, 5 and 11 before anything shows in the lines below and the charts. If you already own the stock, enter the number of shares in line 10 (Number of Shares Owned). Enter the same number in line 11: you will probably change it later. If you do not own the stock, enter the number of shares you want in line 11 (Number of Shares Wanted).Reinvesting Dividends-Minimize CashA

It is important to obtain the latest value for the Current Share Price (line 3) and realistic values for the Target Share Price (line 7) and the Minimum Share Price (line 8). The current price is available from any source that provides stock prices, such as Enter the symbol for the company to get the current price and view the chart to help decide on the Minimum. Deciding on a Target price is a little harder and may require that you have access to analyst reports. Entering a value in line 7 will show the percent change next to it so that you can select target price that seems reasonable. The Minimum Share Price should be what you might expect the price to drop to just before the dividend shares are bought or the lowest value that the stock has gone through in the last year. Next to the Minimum Share Price is a percent which you can use to decide if the number you have entered is reasonable. (Both of the percentages are used in the calculations, so do not change them.)

The Dividends per Share each Issue (line 5) can also be obtained from the above source or by accessing the company’s website and looking for the dividend history. These sources should also provide information on when the next dividend is paid, so the Months to next Dividend Issue (line 6) can be calculated and entered. Use a decimal for part of month.

Normally, dividends change once a year and this can be entered into line 9 as a percent (Increase in Dividend for Year). As companies do not normally publish the dividend amount too far in advance, you will have to use history as a guide. (The calculations spread the increase out over the year because it is simpler to program and does not require an additional value.)

For the example, the data entered for Step (1) are the current share price of $50, dividends at four times a year and $.50 each issue (i.e. each quarter). The Months to next Dividend is set to 0, but it can be any value (even a decimal) up to 3. An arbitrary Target Share Price for the year is $52.50 which is an increase of 5% and one-quarter of it is applied each issue. Similarly, the Minimum Share Price is $47.50 which is a decrease of 5%. The increase in dividends is 1% and one-quarter is applied each issue. Usually, a dividend increase occurs one a year only, but the calculations are simpler when applied each issue. The impact is not likely to be too great. The number of shares in line 11 is set intentionally at 290 to give a large cash left over. The 307 shares of line 12 is the result of the analysis.

B) Number of Shares for 1 Dividend Share

This section calculates the number of shares that are needed to return a dividend equal to 1 share. For the example given above and on the spreadsheet, this is calculated by taking the Share Price (line 12 which is set to line 3, but can be changed, if desired) and dividing it by the Dividend amount = $50 / $.50 = 100 shares. This will cost $5,000 (100 shares x $50 per share) (line 15). Note that lines 13 and 14 are the same for the example, but normally 13 has a fraction. Line 14 is line 13 rounded up to the next whole number.Reinvesting Dividends-Minimize CashB

For the example, the value used in Step (2) is $5,000. The 100 shares of line 12 are to be used in Step (3).

C) Notes

The text box in the upper right corner of the spreadsheet can be used to record any notes desired. Use it to document what options you tried, etc.

D) Buy or Sell At Current Price

This uses other cells on the spreadsheet and summarizes what you want to Buy or Sell.

Lines 16 and 17 give the value of the shares in lines 10 and 11, respectively, using the current share price of line 3.

Line 18 shows how many Shares to Buy or Shares to Sell based on what you already own and the number of shares you entered into lines 10 and 11. Line 19 shows the value of the shares in line 18.Reinvesting Dividends-Minimize CashD

For the example, there are 290 owned shares (line 10) with a value of $14,500 and 290 wanted shares (line 11) for a value of $15,350. The difference is 17 shares (line 18) which are Shares to Buy and At the current share price set in line 3, section A, the Amount to Buy these shares is $850.

E) Summary of Cash as Percent of Share Price for Issue (%)

This section contains the results from sections G to L (discussed later). They are a copy of the relevant lines and are not enterable. By presenting them together, it is easier to see the effect of changes to any of the variables in section A. In addition to the text column, there are 8 columns number 1 to 8 at line 20 for the Issue Number. This corresponds to 2 years of dividends when they are issued 4 times a year.

There are 6 parts to this summary with each part consisting of 3 lines: Shares Bought (with the dividend), Cash Flow left Over and the Cash as a percent of the share price. The percent lines are used for the charts.

The 6 parts provide results for the Target, No Increases and Minimum for each of the Wanted and Owned shares. For details, see sections G to L.

Change any of the values in Section A and examine the 6 parts until you get the values for Shares Bought, Cash Left Over and percent that you are comfortable with.Reinvesting Dividends-Minimize CashE

Initially focus on the Wanted – Target values to ensure that as the stock price increases the Shares Bought (line 21) does not drop nor does the percent get too high. Normally, start the Shares Wanted (line 11) as a multiple of the number of shares in line 14 and increase a few shares each time. A suggestion is to try to bring the percentages in line 23 down to below 10% and to keep the Shares Bought constant. Once this has been done, as a stress test, change the Target Price (line 7) upward to see if the Shares Wanted entered above can still keep the shares bought (line 21) within a range desired. If not, increase the shares wanted. This may take a few tries.

Use the Wanted – Minimum values to ensure that a loss does not affect the dividends too much. This is required because you have no control over the stock price when the dividend is bought. You should be prepared for it to decrease somewhat before the days when the dividend is purchased by the company.

The Wanted – No Increases values are a third point that will be between the Target and Minimum values.

The Owned parts of Target, No Increases and Minimum show what could happen if the number of shares is kept the same.

For the example, the Owned parts show that the cash as a percent is over 90% and above $45 for most of the first year for all parts. There are 2 Shares Bought for each issue. However, if the number of shares is increased from 290 (owned) to 307 (wanted), for the Target, there are 3 shares bought, the cash is about $3.50 and the Percent is less than 7% for 2 full years. If the Target is not met, using the No Increases and Minimum, the percent could be as high as 38% for 1 year and less than $18.50 in the worst case. This is much better than losing up to $45 if nothing is done. The cost is $850 (line 19) to purchase 17 more shares, but over 2 years, another 8 have been added compared to no change (3 each issue vs 2).

F) Charts

There are 2 charts, one for the 3 Wanted percentages and another for the 3 Owned percentages. These charts provide a different way to see how the changes in values in Section A affect the results. For the more visually oriented person, they are very useful view, especially the changes over the 8 issues.Reinvesting Dividends-Minimize CashF1Reinvesting Dividends-Minimize CashF2

For the example, the Wanted chart shows that the Target values are very low with the Minimum becoming very high. On the other hand, the Owned chart shows that all parts are very high and only drop down for a few issues.

G) Shares Wanted – Target

This section has many lines and columns, none of which are enterable. In addition to the text column, there are 8 columns number 1 to 8 at line 18 for the Issue Number. This corresponds to 2 years of dividends when they are issued 4 times a year. All cells are calculated from other cells.

The most important line is 41 (in Bold Italics), which is the Cash Left Over for Issue ($).Reinvesting Dividends-Minimize CashG

Cells in line 42 (Cash as a Percent of Share Price for Issue) will be yellow when they are greater than 10% and red when they are greater than 50%. The 10% lower limit has been chosen arbitrarily, but is usually reachable and normally gives good results over 5 to 6 issues.

Line 36 (Share Price for Issue) shows the increase in price each issue using the value entered in line 3 (Current Share Price) Specifically, the cell for line 36 and Issue number 1 is the same as entered in line 3 adjusted by the number of months in line 6. This number is increased for the cell to the right (for Issue number 2) by the percent in line 7 (Target Share Price for Year). This continues for all cells to the right where the share price increases by the same percentage using the cell immediately to the left.

Line 37 (Dividend per Share each Issue) uses line 7 (Increase in Dividend per Year) to change the amounts in the same way as for line 36 discussed above.

Most of the other lines are used to make the calculations, but they do contain useful information on how the dividends, shares and the value of the shares change each issue: line 38 (Shares to be used for Dividends) will increase each issue as new shares are brought by the dividends in the previous issue), line 39 shows the value of the dividend paid out while line 40 shows how many shares are bought by this payout, line 43 is the value of the shares after the dividend for the issue is paid using the Share Price of line 19, and line 46 is the Yield on a yearly basis, if everything stayed the same for the full year. Changes in value as dollar amount and as a percent from issue 1 are shown in lines 44 and 45, respectively.

For the example, the Target Share Price set in line 7 is reached in issue 5 where it is $52.55. Lines 41, 42 and 43 are linked to by lines 21, 22 and 23 in the Summary section.

H to L) Other Conditions

The same number of lines is used for each of the other conditions: H) Wanted – No Increases, I) Wanted – Minimum, J) Owned – Target, K) Owned – No Increases and L) Owned Minimum. The changes for each are obvious in the Share Price per Issue and the Dividend per Share for Issue which either increases, stays the same or decreases. These changes affect all of the other lines.

H) Calculation of Loss Using Cash Left Over

This section is at the bottom of the spreadsheet. Scroll down to view it. It uses the cash left over at line 74 (Shares Owned – Target) for issue number 1 and the yield for the same issue and fills in 4 columns for 60 months. The columns are: value With Yield, value with No Yield, Loss if the share is not reinvested, and the # of Shares this represents.

Example Results

The Number of Shares Wanted (line 11) has been set to 307 to provide for 3 shares bought with the dividends each issue and only a few dollars of cash left over (about $3.50 and less than 7%) for 2 years. It could be less, but this also ensures that if the share price goes up from 5% to 7%, the drop to 2 shares does not happen until after 1 year (issue 6). If the Target is not reached, and the Minimum is reached, the cash left over is up to $15 or 30%. This is not an unacceptable amount when compared to the $45 of the owned shares. If the stock price falls too much the stock may probably be re-evaluated to see if it should be removed from the portfolio or the number of shares changed. This spreadsheet can then be redone using the values at the time.