Setting Up Your First Dividend‑Reinvestment Account

For college athletes earning significant income from endorsement deals, sudden wealth can bring both exciting opportunities and new challenges. Without a plan to turn those earnings into long-term growth, unexpected setbacks or changing circumstances can make it difficult to build lasting financial security.

One practical tool for building wealth over time is a dividend reinvestment plan (DRIP). These accounts automatically use your stock dividends to purchase more shares, harnessing the power of compounding to support steady growth.

Setting up a DRIP is a simple step toward turning short-term earnings into a foundation for your future. In this article, we will walk through the basics of establishing your first dividend reinvestment account and share tips to help NIL athletes make the most of their new financial opportunities.

The Power of Dividend Reinvestment

DRIPs allow investors to reinvest cash dividends into additional shares of the issuing company, compounding returns over time. Unlike traditional accounts, DRIPs often bypass brokerage fees and purchase shares at a discount (5–10% in some cases). A 2024 Vanguard study estimates that reinvesting dividends can boost portfolio returns by 1–2% annually, doubling a $100K investment in 20 years versus cash payouts (assuming 6% growth).

For NIL athletes, DRIPs provide a hedge against income volatility, generating passive income during lockouts or post-career. Dividend companies with 25+ years of consecutive dividend increases (e.g., Procter & Gamble, Johnson & Johnson) offer stability, yielding 2-4%. Ron’s fiduciary approach, honed through decades of scam-busting, uses DRIPs to build tax-efficient wealth, leveraging low-cost platforms to maximize athlete earnings.

Case Study: Turning NIL Earnings into Long-Term Growth

Kayla, a college volleyball player, quickly built up substantial earnings from sponsorships, social media, and appearances. When a sudden lockout paused her income, she had to rely on her savings to cover essential expenses and taxes.

Instead of keeping all her earnings in a traditional savings account, Kayla explored dividend reinvestment plans (DRIPs) as a way to put her money to work. By reinvesting dividends from stocks and funds, she was able to steadily grow her portfolio and generate extra income—even during periods when new earnings were temporarily on hold.

Kayla’s experience highlights the value of planning ahead and using tools like DRIPs to help transform short-term windfalls into lasting financial security.

Five Elite Tactics for Your First DRIP Account

NIL athletes must approach dividend reinvestment with precision to build lasting wealth. Here are five tactics to set up your first DRIP:

1. Choose Dividend Aristocrats: Invest in companies with 25+ years of dividend increases (e.g., JNJ, PG) or ETFs like NOBL for stability and 2–3% yields. Avoid high-yield traps (>6%) with shaky fundamentals.
   
2. Select Low-Cost Platforms: Use brokerages like Fidelity or Schwab offering fee-free DRIPs. Enroll directly with companies (e.g., Coca-Cola’s transfer agent) for discounted shares.
   
3. Allocate 20–30% of Earnings: Dedicate $100K–$300K of NIL income to a DRIP to generate $2K–$9K annual dividends, buffering lockouts. Reinvest 100% to compound.
   
4. Automate Contributions: Set up monthly transfers ($5K–$10K) from NIL earnings to your DRIP account via ACH. Automation ensures discipline, even during sponsor delays.
   
5. Monitor Tax Efficiency: Dividends may have tax implications depending on your situation. It is a good idea to set aside a portion of your payouts to cover potential taxes and avoid surprises at tax time. For specific questions about tax planning or how dividends are taxed, we always recommend consulting with a qualified CPA.

Actionable Tips from Ron McCoy

• Audit Your Earnings Quarterly: Track NIL income with tools like Yodlee to allocate surplus to DRIPs. Ron warns: “No plan, no empire…. know your cash.”
  
• Screen for Quality: Use Morningstar or S&P Dividend Aristocrat lists to select stocks with payout ratios <60% and debt-to-equity <1. Ron’s rule: “Strong fundamentals, strong dividends.”
  
• Engage a Fiduciary Advisor: Work with a CFP versed in athlete wealth to set up DRIPs. Ron’s Oxford Club network ensures scam-free platforms.
  
• Stress-Test Lockouts: Model DRIP income under 3–6 month lockouts using RightCapital. Target $10K quarterly dividends to cover taxes and expenses.
  
• Reinvest for Legacy: Channel reinvested shares into growth ETFs or munis post-career.

Challenges and Considerations

Dividend reinvestment plans (DRIPs) can be a useful tool, but they come with a few challenges. Fluctuating income, especially for athletes with NIL earnings, may make it harder to consistently fund your account or grow your investments at the same pace each year.

Taxes and market swings are also important to keep in mind. You may need to set aside funds to cover any taxes owed on dividends, and the value of your investments can go up or down depending on market conditions.

Unexpected changes, like lockouts or shifts in regulations, can temporarily pause contributions and affect your overall strategy. It is important to practice discipline and avoid the temptation to overspend or chase risky investments. Taking a steady, long-term approach helps set the stage for lasting growth and financial security.

Conclusion

Dividend reinvestment accounts can be a valuable tool for turning unpredictable earnings into lasting growth. For athletes and anyone with variable income, building good financial habits and taking a steady approach to reinvesting dividends can help create a strong foundation for long-term wealth. With thoughtful planning and discipline, you can make the most of your opportunities and support your financial goals for years to come.

Sources

1. Vanguard. (2024). The Power of Dividend Reinvestment. https://www.vanguard.com/insights/dividend-reinvestment
2. Forbes. (2024). NIL Earnings Volatility: Athlete Financial Challenges. https://www.forbes.com/sites/nil/2024/02/10/nil-earnings-volatility/
3. Morningstar. (2024). Dividend Aristocrats in 2023 Bear Market. https://www.morningstar.com
4. IRS. (2025). Publication 550: Investment Income and Expenses. https://www.irs.gov/publications/p550