How to Set Up Automatic Dividend Reinvestment at Fidelity

Automatic Dividend Reinvestment at Fidelity

Fidelity lets you reinvest dividends automatically through a feature called DRIP (Dividend Reinvestment Plan). When you turn it on, any cash dividends your stocks or mutual funds pay out are used to buy more shares of the same holding instead of sitting in your cash account. You set this up once per holding, and it runs on its own until you turn it off.

The main advantage is that you buy more shares without paying a commission, and those new shares earn dividends too — compounding your growth over time. The trade-off is that each reinvestment is a taxable event, even though no cash left your account. You will owe taxes on the dividends in the year they are paid, whether you reinvest them or take them as cash.

Key Takeaways

• DRIP is turned on or off individually for each holding in your Fidelity account, not as a blanket setting for your whole portfolio.
• You can enable DRIP through the Fidelity website, mobile app, or by calling 1-800-343-3548 and asking to speak with a representative.
• Reinvested dividends are taxable in the year they are paid, so DRIP works best in tax-advantaged accounts like IRAs where you do not owe taxes until withdrawal.
• Fidelity charges no commission on dividend reinvestment, but fractional shares may be rounded down depending on your holding type.

Enable DRIP Through the Fidelity Website

Log into your Fidelity account and go to the Positions page. Find the stock or mutual fund where you want to turn on DRIP. Click on the holding name to open its details page, then look for a link or button labeled "Dividend Reinvestment" or "DRIP Settings." Click it and select "Reinvest Dividends." Confirm your choice, and the change takes effect on the next dividend payment date.

If you do not see a DRIP option on the details page, the holding may not support it — this is rare for stocks and mutual funds, but some exchange-traded funds (ETFs) and closed-end funds have restrictions. You can also search "DRIP" in the Fidelity help center to find a direct link to the DRIP management page, which shows all your holdings and their current DRIP status in one place.

Enable DRIP Through the Fidelity Mobile App

Open the Fidelity app and tap the Positions tab at the bottom. Swipe to find the holding you want to change. Tap the holding name to open its details, then scroll down and look for "Dividend Reinvestment" or a settings icon. Tap it, select "Reinvest Dividends," and confirm. The change applies to the next dividend payment.

The mobile app layout can vary by device and app version, so if you cannot find the DRIP option, try searching within the app for "dividend reinvestment" or "DRIP." You can also call Fidelity directly — the phone route is often faster if you have more than a few holdings to change at once.

Enable DRIP by Phone

Call Fidelity at 1-800-343-3548 and tell the representative which holdings you want to enroll in DRIP. Have your account number ready. The representative will confirm each holding and turn on DRIP for you over the phone. This method is useful if you have trouble navigating the website or app, or if you want to change multiple holdings at once and prefer to do it in one call.

Fidelity does not charge a fee for this service. The change takes effect on the next dividend payment date for each holding, which varies depending on the company's dividend schedule.

Tax Implications of Reinvested Dividends

Reinvested dividends are taxable income in the year they are paid, even though the cash never reaches your pocket. If you hold the stock in a regular taxable brokerage account, you will owe federal income tax on the dividend amount at your ordinary income tax rate. Some dividends may have access to as "may have access to dividends" and are taxed at a lower long-term capital gains rate, but you still owe tax in the year of payment.

DRIP makes the most sense in tax-advantaged accounts like a traditional IRA, Roth IRA, or 401(k), where dividends are not taxed until you withdraw money. If you hold the stock in a taxable account, you may want to reinvest only in tax-efficient holdings like index funds, or skip DRIP and take dividends as cash so you can manage your tax liability more deliberately.

Turn Off DRIP or Change It Later

You can turn off DRIP at any time through the same method you used to turn it on. Go to the holding's details page on the website or app, find the DRIP setting, and select "Do Not Reinvest" or "Receive as Cash." The change takes effect on the next dividend payment date. After that, dividends will land in your cash account instead of buying new shares.

You can also change DRIP status by calling Fidelity. There is no penalty for turning DRIP on or off, and you can change it as often as you want. Some investors turn DRIP on for long-term holdings and off for stocks they plan to sell soon, so they can use the cash for other purposes.

Fractional Shares and DRIP at Fidelity

When a dividend reinvestment does not divide evenly into whole shares, Fidelity handles fractional shares depending on the holding type. For most stocks and mutual funds, Fidelity will buy fractional shares so that the entire dividend amount is reinvested. For some ETFs and other holdings, fractional shares may not be available, and the remainder may be held as cash or rounded down.

Check the details page for your specific holding to see whether fractional shares are supported. If fractional shares are not available and you want to reinvest the full dividend amount, you can manually buy additional shares with the cash remainder, or contact Fidelity to ask about alternative options for that holding.

Frequently Asked Questions

Does Fidelity charge a fee to set up or use DRIP?

No. Fidelity does not charge a commission or fee for dividend reinvestment. The only cost is the tax you owe on the reinvested dividends in the year they are paid.

Can I turn DRIP on for some holdings and off for others?

Yes. DRIP is set individually for each holding, so you can reinvest dividends from one stock and receive cash dividends from another in the same account. You manage each holding separately through the Positions page or by calling Fidelity.

What happens to my DRIP settings if I transfer my account to another brokerage?

DRIP settings do not transfer automatically. When you move your account, you will need to set up DRIP again at the new brokerage if you want to continue reinvesting dividends. Contact the new brokerage to learn how to enable DRIP for your holdings there.

Can I reinvest dividends from mutual funds at Fidelity?

Yes. DRIP works for most Fidelity mutual funds and funds from other companies held at Fidelity. The process is the same as for stocks — find the fund in your Positions page and enable DRIP through the details page or by phone.

If I reinvest dividends, do I have to report them differently on my taxes?

Reinvested dividends are reported the same way as cash dividends on your tax return. Fidelity sends you a Form 1099-DIV each year that lists all dividends paid, whether reinvested or taken as cash. You report the full amount as dividend income, regardless of what you did with the money.