Wednesday, January 25, 2006

Looking at Dividend Reinvestment/Share Purchase Plans

I admit that I sort of glossed over DRIPs initially, mostly because online brokers are more in my comfort zone given my limited trading experience, and at first glance I may have unfairly considered this approach unduly complex.

However, as a reader aptly commented on an earlier post, a good number of the companies on my watch list offer DRIP/SPP programs. Not only that, but as pointed out in a 2003 Money Saver article, a ‘core DRIP portfolio’ as recommended by Tom Connelly including a telecom, a pipeline, an electrical utility and a bank (he also includes Terasen) can all be acquired through DRIPs. Not only this, but at least for the pipeline, utility and bank, these also can be cross-listed with Mergent's Dividend Achievers list - Enbridge, Fortis/Emera, and pretty much all the banks, save RBC – respectively.

The other benefit I see personally with DRIPs/SPPs is that I can pretty much start investing immediately with even monthly contributions, without having to save up lump sums that end up competing with other household interests. Naturally, paying no commission fees has an obvious savings appeal.

With these considerations, my portfolio could be:












In fairness, I have run into a couple of challenges:
  1. Getting the first share – while I have had some interaction from the great group at DripInvesting.org (lots of information here as well) in trying to buy a single, this will take some time, unless I want to shell out large service fees to buy a share through my Waterhouse account and transfer into my name.
  2. Despite a wealth of good resources online, there still is a lot to figure out for a first-timer by culling from a number of sources (some of which are occasionally spotty and out of date). I may well craft a small series in the ‘DRIPs for Dummies’ vein once I get through my first transaction.
All in all though I'm currently pretty excited about the opportunities that DRIPs can offer.

5 Comments:

Anonymous 0xcc said...

If you have a TDWaterhouse account (which it looks like you do) you can actually enroll in a DRIP through that account with no fees. I am currently doing this with my BMO and RY stocks. The only downside to this is that you don't get partial shares, any dividend that you get is used to buy as many whole shares as it can and then any cash left over is deposited into you account. I recently increased my investment in RY just so that the quarterly dividend would buy 1 share.

1/26/2006 8:17 AM  
Blogger Humble Investor said...

Thanks 0xcc (pronounced 'interrupt'?),

Just so I understand completely the scenario when using TD Waterhouse, purchasers can buy shares (with a TDW transaction cost applicable) and if a DRIP exists, register for this through Waterhouse at no additional cost. In other words, you can do the DRIP (without fractional purchases) but obviously not the SPP through Waterhouse, correct?

I can see this being advantageous once I build up my portfolio a bit and have more cash available to make lump sum purchases with TDWaterhouse.

This leads me to wonder how easy/difficult is it to transfer to a brokerage account from a DRIP/SPP transfer agent once I either want to stop reinvesting dividends or once I want to benefit from the tools offered by the online brokerage.

Thanks again for your feedback.

1/26/2006 11:31 AM  
Anonymous 0xcc said...

Yes, you have it right. Once you buy a share of a stock with TDW (which you have to pay at least $29 to do) you can enroll in the DRIP without paying any more fees to buy more whole shares from the dividends you get from that stock. I don't think you can do the SPP stuff though, I guess TDW would like to get some commissions for any share purchaces made using their services. Go figure. :)

Moving stock to your TDW account from a DRIP?SPP account should be too hard but it does involve visiting your local TDW branch (lucky for me, there is one within walking distance of where I work). I do this for my Employee Share Purchase Plan (deductions come off my paycheque and go into the ESPP with a portion thrown in by my employer). Basically I ask to get share certificates delivered to me. About a week later they come in the mail, an actual share certificate with the number of shares printed on it. I take that to my local TDW office and tell them I want to deposit the shares in my account. They take the shares and 3-5 days later they show up in my online account, ready to trade (or do whatever I want with them). It is pretty easy.

1/28/2006 5:06 PM  
Anonymous Anonymous said...

Isn't the TD Waterhouse 'drip' considered a synthetic drip? It only works if you can purchase whole shares? Dripping directly with the companies themselves (really their transfer agents) is very simple. The hardest part is just getting your first share.

Once you are registered, you just mail in your check to the transfer agent. Some plans allow for monthly purchases, others are quarterly.

The beauty is that they reinvest free of charge and purchase fractional shares. Some even offer a discount, but this is pretty rare.

1/29/2006 10:49 PM  
Blogger Humble Investor said...

You are absolutely correct - while I'm quite excited about getting a few DRIPs/SPPs going, getting the first share (without buying and transferring through a broker) does appear to take some time. I'll keep persevering...

1/30/2006 8:48 PM  

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Disclaimer: These articles are for information only, and are not to be construed as financial advice, legal advice, or a solicitation to buy or sell securities.