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.
Showing posts with label DRIP. Show all posts
Showing posts with label DRIP. Show all posts
Monday, January 28, 2008
Monday, November 26, 2007
DRIPs
After my last post about DRIPs I received a few e-mail enquiries regarding different aspects of DRIPs so I thought it would be worthwhile to go over the basics.
What is a DRIP?
DRIP stands for Dividend Reinvestment Plan. There are 3 different types of DRIPs however they all work on the same principle, instead of shareholders receiving dividend payouts in cash they receive their dividend payout in the form of more company shares.
3 basic types of DRIPs
Company Run
This type of DRIP is administered directly through the publicly traded company. Fractional shares are permitted in this type of DRIP meaning that if you receive a quarterly dividend of $1 and the share price is $5 you would receive an additional 1/5 of a share. Additionally, many company run DRIPs also provide shareholders some incentive for staying enrolled ie – 3% bonus to the regular dividend. Company run DRIPs also usually offer a Share Purchase Plan which is a plan that allows investors to buy additional shares with no commission.
Transfer Agent-Run
For the shareholder this type of DRIP is the same as a company run DRIP. Transfer Agents are employed by companies to streamline their DRIP process and reduce the administrative costs associated with running a DRIP. Transfer Agents run DRIPs for a many customers and as a result can run offer the same program to multiple companies using the same resources resulting in lower costs.
Brokerage Run
Many brokers will now allow customers to reinvest their dividends at no cost. This type of DRIP is not a “real DRIP”, it is more of a service that the brokers provide to their customers and is often referred to as a “synthetic DRIP”. One benefit of brokerage run DRIPs is that they will allow you to DRIP many companies that do not even have a formal DRIP program. This allows investors to now DRIP virtually every blue chip company on the Canadian and US exchanges. Although synthetic DRIPs have really expanded the number of drippable companies they do have a few drawbacks. The first of which is brokerage run synthetic DRIPs do not allow for fractional share ownership, only full shares will be purchased and the remainder of the dividend will be deposited as cash into the customers trading account ie-company ABC has a $15 quarterly dividend and a $10 share price, this would result in the customer receiving 1 share of ABC and $5 cash instead of 1.5 shares. The second drawback of brokerage run DRIPs is that share purchase plans are not available. If you want to buy additional shares you have to pay the regular commission price of your broker.
I would just like to point out that if you plan to DRIP in a non-registered account it’s very important that you track the purchase price of each share bought through your DRIP as you’ll need to calculate your adjusted cost base if you ever do eventually sell some/all of your shares.
What is a DRIP?
DRIP stands for Dividend Reinvestment Plan. There are 3 different types of DRIPs however they all work on the same principle, instead of shareholders receiving dividend payouts in cash they receive their dividend payout in the form of more company shares.
3 basic types of DRIPs
Company Run
This type of DRIP is administered directly through the publicly traded company. Fractional shares are permitted in this type of DRIP meaning that if you receive a quarterly dividend of $1 and the share price is $5 you would receive an additional 1/5 of a share. Additionally, many company run DRIPs also provide shareholders some incentive for staying enrolled ie – 3% bonus to the regular dividend. Company run DRIPs also usually offer a Share Purchase Plan which is a plan that allows investors to buy additional shares with no commission.
Transfer Agent-Run
For the shareholder this type of DRIP is the same as a company run DRIP. Transfer Agents are employed by companies to streamline their DRIP process and reduce the administrative costs associated with running a DRIP. Transfer Agents run DRIPs for a many customers and as a result can run offer the same program to multiple companies using the same resources resulting in lower costs.
Brokerage Run
Many brokers will now allow customers to reinvest their dividends at no cost. This type of DRIP is not a “real DRIP”, it is more of a service that the brokers provide to their customers and is often referred to as a “synthetic DRIP”. One benefit of brokerage run DRIPs is that they will allow you to DRIP many companies that do not even have a formal DRIP program. This allows investors to now DRIP virtually every blue chip company on the Canadian and US exchanges. Although synthetic DRIPs have really expanded the number of drippable companies they do have a few drawbacks. The first of which is brokerage run synthetic DRIPs do not allow for fractional share ownership, only full shares will be purchased and the remainder of the dividend will be deposited as cash into the customers trading account ie-company ABC has a $15 quarterly dividend and a $10 share price, this would result in the customer receiving 1 share of ABC and $5 cash instead of 1.5 shares. The second drawback of brokerage run DRIPs is that share purchase plans are not available. If you want to buy additional shares you have to pay the regular commission price of your broker.
I would just like to point out that if you plan to DRIP in a non-registered account it’s very important that you track the purchase price of each share bought through your DRIP as you’ll need to calculate your adjusted cost base if you ever do eventually sell some/all of your shares.
Thursday, November 22, 2007
To DRIP or Not to DRIP
I have recently decided to enroll in the DRIP of many of my holdings. For those of you that have followed this blog for a while you’ll know that this is contrary to the opinion I had in March of 2007. However, before I’m labeled hypocritical (or possibly fickle) let me plead my case and explain the rational behind enrolling some of my positions.
My portfolio is now at the point where I won’t be adding many more new names as I plan on only holding between 20 and 25 securities. I believe that 20 to 25 holding will provide me with adequate diversification as well as allow me to keep informed on the names I own. As I’ll only be adding between 3 and 8 more positions I will be concentrating on increasing the amount invested in each of my holdings so I’ve decided that DRIPs would be the most effective method to do that as it would become burdensome and not very cost efficient to make 17 to 25 small additional purchases each year. I have chosen to exclude both TD and CSH.UN from the DRIP simply because I already own enough of them. The dividends and distributions from those names will be paid in cash which will be used to eventually add new positions. It’s important to note though that although I’ve enrolled in the DRIP I wouldn’t hesitate to add to existing positions that I felt were undervalued.
Here are the positions that I’ve decided to DRIP:
TRP
C
GWO
POW
WAG
L
UNS
JNJ
MMM
PFE
EIT.UN
ATD.B
My portfolio is now at the point where I won’t be adding many more new names as I plan on only holding between 20 and 25 securities. I believe that 20 to 25 holding will provide me with adequate diversification as well as allow me to keep informed on the names I own. As I’ll only be adding between 3 and 8 more positions I will be concentrating on increasing the amount invested in each of my holdings so I’ve decided that DRIPs would be the most effective method to do that as it would become burdensome and not very cost efficient to make 17 to 25 small additional purchases each year. I have chosen to exclude both TD and CSH.UN from the DRIP simply because I already own enough of them. The dividends and distributions from those names will be paid in cash which will be used to eventually add new positions. It’s important to note though that although I’ve enrolled in the DRIP I wouldn’t hesitate to add to existing positions that I felt were undervalued.
Here are the positions that I’ve decided to DRIP:
TRP
C
GWO
POW
WAG
L
UNS
JNJ
MMM
PFE
EIT.UN
ATD.B
Tuesday, March 6, 2007
Re-Investing Dividends
Should you re-invest dividends or take the cash? You often hear about the benefits of enrolling in DRIPs (and I agree with all of them) but today I’m going to present an alternative view of reinvesting dividend and explain why personally I take the cash.
The main reason I chose cash over the DRIP plan is that I like to determine the price at which I buy a stock. Additionally, I plan on keeping most of my dividend paying stock indefinitely and the DRIP programs would result in many of my holdings becoming too large a percentage of my portfolio. For example, TD is already approximately 14% of my portfolio and I’ve held it for 5 years however if I’d been in the DRIP it would probably be around 17% or 18% (and growing). Instead I took the dividends and reinvested them in other high paying dividend stocks (when I thought they were on sale). If there ever reaches a point where a dividend paying stock falls below a reasonable percentage allocation in my portfolio I will wait for a price I believe is fair and purchase more to bring the weighting up.
The main reason I chose cash over the DRIP plan is that I like to determine the price at which I buy a stock. Additionally, I plan on keeping most of my dividend paying stock indefinitely and the DRIP programs would result in many of my holdings becoming too large a percentage of my portfolio. For example, TD is already approximately 14% of my portfolio and I’ve held it for 5 years however if I’d been in the DRIP it would probably be around 17% or 18% (and growing). Instead I took the dividends and reinvested them in other high paying dividend stocks (when I thought they were on sale). If there ever reaches a point where a dividend paying stock falls below a reasonable percentage allocation in my portfolio I will wait for a price I believe is fair and purchase more to bring the weighting up.
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