Unfortunately, no. Outside of a retirement plan, dividends are taxable whether you receive them in cash or reinvest them into additional shares. While ordinary dividends are taxed at your ordinary income tax rate, "qualified" dividends (from dividend-paying companies meeting certain requirements) receive favorable federal tax treatment as follows:
taxpayer in 10% or 15% federal income tax bracket -- 0% dividend tax rate
25%, 28%, 33% or 35% income tax bracket -- 15% dividend tax rate
39.6% highest income tax bracket -- 20% dividend tax rate
In addition to being taxed currently in taxable accounts, dividend reinvestment can create nightmarish problems when stock is sold.
I had a client who was on dividend reinvestment with Exxon when he became my client. To get his holdings into the custodian's portfolio record system, I had to go back and get the amount of each divdend he received and the closing price on the day the dividend was paid for 15 years. Each time a trade was entered, I had to check which positions were gains or losses and mark the trades accordingly. I won't go into the gory details of the other four stocks he held: you get the record keeping picture, I'm sure.
Dividend Reinvestment Plans (Drip's is the term in the brokerage community) are a method of forced savings. That's a plus. But be sure you keep good records if you ever embark on such a program.
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