Monday, 9 March 2009

Going on Autopilot with Dividend Reinvestment

What do you do with the cash received in your investment account from dividends and distributions from stocks and income trusts? These days the interest paid on cash balances isn't very high. Perhaps you would as a long term investor rather have the money plowed back into the companies you hold already?

A Dividend Reinvestment Plan (DRIP) offers that possibility. Instead of sending you the dividend, the company buys more shares for your account, usually at the prevailing market price, sometimes at a discount (e.g. Bank of Montreal has recently announced that it is offering DRIP shares at 2% discount). Two big pluses - 1) it's automatic after you set it up through your brokerage, a great convenience in time and effort saved, especially with multiple holdings and, 2) it's free - you pay no brokerage commissions.

Broker Offerings
Brokers differ quite a bit in what they offer:
  • purchase only whole shares at a time (in which case you end with small amounts of residual cash) or even fractions of shares
  • enrol stock by stock for DRIP or for the whole account
  • number of stocks which can be DRIP'd (some publish the list like BMO Investorline's here, or you must call the broker to find out)
Stingy Investor has compiled an excellent list of Canadian brokerage DRIP offerings (of course, be sure to double check accuracy with the broker).

Some brokers even offer what is known as a "synthetic DRIP" service, whereby the broker will purchase for free extra shares with the dividends even though the companies don't offer it themselves. This can extend an investor's DRIP capability to things such as ETFs, as described by CanadianFinancialDIY in this post.

Canadian shares and trust units with DRIP programs
Stingy Investor publishes here a list, as does blogger Canadian Dividend Reinvestment Plans here. Note that the lists are not identical, no doubt because of timing and thoroughness of updates, so again, check with your broker on a particular company.

US Shares
There are apparently over 1300 securities in the United States with DRIP programs - see the search page. Once again, Canadian brokers differ in what they offer regarding DRIPs for US holdings.

How to Set Up the DRIP
Simply phone up your broker and go through the accounts and shares you want on DRIP.

Stingy Investor's Intro
Robert Gibb's DRIPs 101: DRIP Classifications on the
DRIP Investing Resource Center - Articles, Forum, Tools, Recommended Books, Links
Financial Webring discussion thread on DRIPs/SIPs/Synthetic DRIPs

Normally, a drip is cause for a headache at home, as leaking taps and pipes cause damage and annoyance. Not so with the uppercase acronym DRIP, whose slow and persistent operation can build the wealth in a portfolio while saving effort and cost.


Anonymous said...

Check out a recent new product from Claymore Investment Funds Inc: index funds with a DRIP component and withdrawals w/o penalties

CanadianInvestor said...

Thanks Anon, Claymore is certainly going the right way in making it easier for investors to DRIP.

Anonymous said...

Hello. My wife and I bought our house about 6 months ago. It was a foreclosure and we were able to get a great deal on it. We also took advantage of the 8K tax credit so that definitely helped. We did an extensive remodeling job and now I want to refinance to cut the term to a 20 or 15 year loan. Does anyone know any good sites for mortgage information? Thanks!


CanadianInvestor said...

Mike, you could try

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Anonymous said...

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