Do I turn dividend reinvestment on, or let the mREIT payments pile up as cash

The part I got stuck on when I read about this twice was price relative to book value. If a mortgage REIT trades below what its portfolio is carried at, is automatic reinvestment buying at a discount, and if it trades above, am I paying up every quarter without noticing? That seems like the actual mechanical difference between the two choices, and it isn't something the brokerage toggle knows anything about.

Cash, for me. I'm still building a list of properties I might buy and every dollar that lands in the brokerage is a dollar that could go toward a down payment instead. Compounding inside one holding is fine, but I'd rather have the money uncommitted while I'm still deciding what I'm doing.

I reinvest. My whole approach with land has been to hold long and let time do the work, and I don't see why paper would be different. The thing I'd push back on in your post, @anchor, is the idea that cash gives you the option to add when you want to. In practice most people never pull the trigger, and the cash sits there for two years being a decision they keep postponing.

I treat the payments the way I treat rent that comes in through the management business. It gets swept out and assigned to something. That habit came from watching owners let money sit in an operating account until it got spent on nothing in particular. So cash, but cash with a destination already written down.

A few definitions so the vote is about the same thing for everyone.

Automatic reinvestment (often called a DRIP) means the brokerage takes each dividend and buys more shares of the same holding on the payment date, usually including fractional shares. You are not choosing the price. Book value per share is roughly what the company's mortgage and mortgage-backed securities portfolio is carried at, minus its borrowings, divided by shares outstanding. Mortgage REITs frequently trade above or below that figure, and the gap moves with interest rates and with how wide the spread is between their borrowing cost and their mortgage yields.

That spread is where the income comes from, so the dividend is not a fixed payment. When the spread compresses or borrowing costs rise faster than asset yields, distributions can be reduced. Reinvestment does not protect against that, and it does not concentrate risk any less just because it happens automatically.

On taxes, distributions from mortgage REITs are commonly ordinary income rather than qualified dividends, and part of a distribution can be classified as return of capital, which affects your cost basis. The classification comes from the issuer's year-end reporting and depends on your account type and your own situation, so confirm the treatment with a tax professional rather than assuming.

The choice between reinvestment and cash is mostly about whether the money has a better use elsewhere and whether you want to control the entry price. Both are ordinary answers.

Cash for me, and it isn't really an investing decision. I'm building a service business and the months are uneven, so anything that arrives on a schedule gets counted as runway. Reinvesting would mean locking away money I might need in March.

My position is small enough that a quarterly dividend buys about a share and a half. There's nothing I can do with that amount manually, so reinvestment is the only option that isn't just accumulating dust. If the position ever gets big enough that a payment is a real sum, I'd probably switch.

Reinvest until the number is big enough to matter, then decide. That seems like the boundary.

I reinvest, and I cap the position at a set percentage of the account. That's the piece @orchard's answer is missing. If you reinvest forever into a rate-sensitive holding, it grows as a share of your money at exactly the times it's performing well, which is when it's most expensive. Rebalancing once a year fixes that without me having to think about entry prices.

What scared me off automatic reinvestment was seeing charts where the total return looked fine but book value per share had been falling for years. The dividend kept coming and reinvestment kept buying, and the underlying value per share kept shrinking. I don't know how to distinguish that from a normal period yet, which is why I'd rather hold the cash and look at the quarterly numbers first.

Cash. I do thin margin deals and the habit carries over, I don't like buying anything on a schedule someone else set. If the shares are trading at a premium to book on the payment date I'd rather do nothing that quarter than add at the top.

Mine go to the repair reserve for the small multifamily. Last year that meant a water heater and a chunk of a parking lot patch got paid for out of paper income, which felt better than it sounds. Not compounding, no, but the reserve is the thing that keeps me from taking on short term debt when something breaks.

I take cash and reinvest manually, once a quarter, into whatever is furthest below where I want it. Same money, same holdings, and I get to see the price I paid. The only cost is fifteen minutes and remembering to do it.

I'm saving for a first purchase, so cash, and it's going into the closing cost pile. Reinvesting would be undoing the reason I have the money invested at all.

Reinvest. I know I won't do the manual version consistently and I'd rather build the automatic habit than the good intention.

@pike, the falling book value thing is real, though it isn't automatically evidence of something going wrong. If a mortgage REIT holds fixed rate mortgage-backed securities and rates rise, the market value of those holdings drops and book value per share drops with it, even when nothing has defaulted. What matters is whether the earnings still cover the dividend and how much borrowed money is sitting behind the portfolio. Book value alone will scare you out of things and into things at the wrong times.

Basic question since I'm starting from nothing here. If reinvestment buys fractional shares, do those fractions pay dividends too, or do I need whole shares for that? I couldn't find a clear answer in the brokerage help pages.

@ember, fractions get paid proportionally at most brokerages, though it's worth reading your own account agreement because the handling of fractional positions varies by broker.

I split mine. Half reinvests so I stop fiddling, half comes out as cash toward the next deal. That started as indecision and turned out to be the arrangement I'd have chosen anyway.

I put both paths in a spreadsheet and the gap over ten years was smaller than I expected, maybe a few percent of the ending balance, and the whole result depended on one assumption: whether the dividend holds. If I assumed a cut in year three, cash won, because the cash didn't buy shares into a declining payment. If I assumed the dividend held, reinvestment won. So the vote is really a vote on how much confidence you have in the spread environment, which nobody actually has.

Here's the one I'd have been too embarrassed to ask out loud. If I reinvest instead of taking the money, do I still owe tax on it in a regular taxable account? I had a vague idea that reinvesting delayed something, and I don't think that's right.

@compass, no, the distribution is generally treated as received whether it lands in cash or buys shares, and the specific classification and rate depend on your account type and your situation, so a tax professional is the right check there.

What I find interesting is how many people in this thread answered based on their business cash needs rather than on the investment. @lantern and @thatch are basically running a treasury decision.

It reads like a draw schedule to me. On a job you don't leave money sitting in the account because there's always a use for it, and you don't spend it early either. Cash with an assignment, same as @trellis said.

Five years of running the service business taught me the value of money arriving on a predictable date, and I'm not giving that up for compounding! Payments come out as cash, they smooth the slow months, and if a quarter goes well the surplus buys more shares by hand. @anchor, the thing your post treats as one decision is actually two, whether the money leaves the position and whether it comes back. You can say yes to the first and still say yes to the second.