Dividend Reinvestment Plans - DRIPs

If you are unfamiliar with Dividend Reinvestment Plans please read the following posts from November, 2007 “DRIPS” and “To DRIP or not to DRIP”.

I have recently chosen to enroll my entire account in a synthetic DRIP program. In a previous post I had mentioned that I chosen to DRIP some of my holdings however all holdings are now DRIPed and all new holdings will automatically be enrolled in a synthetic DRIP program without me having to notify a broker.

Setting up an automatic DRIPing program is extremely easy and can be done with one five minute phone call to your discount broker. You simply call your discount broker, and tell them which account you’d like to enroll.

I’ve chosen to DRIP my entire account to take advantage of recent declines in the market. Additionally, my portfolio is now at the point where I won’t be adding a lot of new names and as a result won’t require the cash flow from my current holdings to finance the purchase of new names. Additionally, with approximately 20 holdings in my portfolio it’s become inefficient to add small amounts to so many names.

Before enrolling in a DRIP program it’s vital that you understand that all purchases made through a DRIP must be accurately tracked (unless you’re DRIPing within an RRSP) as you’ll eventually be responsible to the taxman for all purchases made. If/when you eventually decide to sell (or the company is bought out) you have to be able to accurately calculate your adjusted cost base in order to calculate your capital gains.