Drips – Investing made simple.

Drips

Drips – Investing made simple.

I just realized I have never done a post about drips. If you have been following me for a bit, I’m sure you would know how big of a fan I am of them. Like the title says, it really does make investing easier. Drips are one of the fastest ways to compound your money/ investments organically, set it and forget it.

What Exactly is a Drip?

Drip stands for dividend reinvestment program in the investment world. Essentially instead of getting cash dividends you can get more of that companies shares.

A lot of dividend paying stocks allow the drip program, but not all. Also some drips programs are for certain Country’s only. You can see if they do on their website or when your looking at the stock on your brokerage account.

Normally when you purchase a stock in your account there is some kind of trading fee but with the drip program all the new buys are free. Yup free! Companies would rather you keep investing in their company vs paying out money monthly/ quarterly etc etc. Most companies also offer a discount on dripped shares. Algonquin Power for example offers a 5% discount from the average market price on dripped shares. Yes you instantly are up 5% on all your dripped shares. Winning!

How Does it Work?

You may be thinking, dam this sounds too good to be true. A discount on new shares and no trading fees or commissions? How do I get started?

Its actually very easy, go on your brokerage and sign up to drip your shares. I personally bank with Rbc direct investing, I just had to call them and they set it up. Unfortunately they are currently setup to only have all stocks drip or none. You cant pick and choose at the moment which stocks to allow to drip. (This can be a disadvantage if you feel a stock is overvalued and have enough income from that particular dividend stock to drip new shares)

It may take a couple weeks for it all to get setup, but once it is your laughing.

Full or Fractional Drip plans

Now you can sign up for just full share drip plans or fractional share drips. I think in Canada we can only do full share drip plans but correct me if I’m wrong. Now what is the difference?

Lets say company X pays you a cash dividend of 40 bucks. Its current stock price is 30 bucks. (For example sake the stock offers no drip discount.)

  • With a full share drip you will get one additional share automatically and receive the 10 dollars difference in cash.
  • A fractional share drip plan will invest the full 40 bucks and give you 1.3333 shares.

Fractional would be absolutely great for those higher priced stocks with low yields. Ie CNR Id love to drip this stock but will take quite the investment to drip the full share.

Another huge benefit of Drips

So we now know that dripped shares are commission free and can offer a nice discount on the new shares. (if the company offers that) They also make investing really simple by just reinvesting into companies that you already like. But what is another huge benefit?

Market Crash’s. Yes you read that right. A big crash wouldn’t be all the bad if your a long term investor. Some people would be trying to sell their stocks before the price plummets more etc etc….. But why panic? If you are dripping your shares, there is a very high chance you will get more shares. Sweet!

A 10% plus market drop may actually allow certain stocks to drip in more shares. This is one of my favorite things about drips. While everyone else is frantic, you can try to be more relaxed knowing it might actually benefit you long term.




Is the Drip Program For You?

The dividend reinvestment program isn’t for everyone. I have read numerous bloggers who choose to not enroll in the drip program. They want the cash to buy the stock/s they are currently interested in or feel are undervalued. There is also a lot that love it. Personally I’m a huge fan, I own the stocks for a reason. I like them and feel they are good companies, Id love to keep acquiring more of them. Every month my new drips add to our forward dividend income.

Conclusion

I feel the Drip program is another great tool in the chest to help compound and grow your passive income through dividend investing. The other methods would be  new cash being invested into the market and dividend raises. Combine all 3, and surely your snowball will grow!

Are you currently enrolled in the drip program? why or why not?

Keep stacking those Div’s

Cheers!

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24 Responses

  1. Great article on the powers of a DRIP Rob. I recently did an post pertaining to the same thing! One has to love the power of compounding without the commissions.

    • Rob says:

      hey Dr

      Welcome, love seeing new faces around here!

      Haha I dont want to bust your style, missed your post. Got to check it out.

      cheers

  2. GYM says:

    Great post Rob! I love DRIPping! But I only have two stocks that I drip, and set them up years ago. Husky (HSE.TO) and Sunlife (SLF.TO). It is nice when you see you have another share and it just adds up by itself. A great way to save money on trading/comissions.
    GYM recently posted…How to Maximize your Canada Child Benefit (CCB)My Profile

  3. Nice article, Rob! Dips are great, but I choose to harvest my dividends and invest them with my monthly contributions. However, if I open an investment account for the kids, I would definitely sign up for Drips and let the account grow on its own.

    • Rob says:

      hey German

      thanks, taking the cash is great but you miss out on the discounts. lol Too eachs own though. when you put the cash to work monthly anyways, it grows just as fast.
      cheers

  4. Rob thanks for the post. I’m also a huge fan of DRIP. All of our holdings enrolled for DRIP. TD Waterhouse does allow DRIPing selected stocks.

  5. Wally says:

    I DRIP as well! I love this feature. I didn’t realize some companies offer a discount though! thats something ill have to look into a bit more. thanks for sharing!

  6. I drip some shares. BNS and ENB with the transfer agent directly, and receive the 2% discount with ENB.

    Enerplus and Cominar REIT have drips turned on but not to DRIP since their payouts have been cut. I will find out if High Liner can drip next month. Questrade buys their DRIP shares on the open market, which means that no discount will be applied unlike other brokerages that do something different and pass the discounts a long.

    • Rob says:

      hey Pursuit

      Nice man, gotta love the drips. For some reason with rbc highliner doesnt drip for me.

      Nice buy though, im on the fence about doubling up.

      cheers

  7. Cris says:

    I am fun of the DRIP programs as well but to bad that most of brokerages are allowing only full DRIP.
    Does anybody knows any brokerage other then Computershare which is doing partial DRIP-ing?

    • Rob says:

      hey Cris

      I dont know of any others. Maybe someone can help.
      cheers

      • Charles says:

        Rob and Cris,

        Check out this company.

        http://www.astfinancial.com/ca-en/issuer-investor-services

        I used to have some BCE shares held with them but opted to transfer those shares to Scotia iTrade. It was far easier for me to have everything held with an online broker.

        ALL my investment holdings held with TD and BNS are set up for the automatic reinvestment of the dividends. Fractional shares are not purchased so if I receive $1238.42 in dividends from XYZ and only $1235.00 was be used to acquire new whole shares then the difference between the two amounts remains as cash in my account. This service is not available for American Deposit Receipts.

        Hope this helps.

        Charles

        • Rob says:

          hey Charles

          Great to hear, maybe something to look into.

          Like you, i find it easier to keep them with the same broker.

          cheers and Thanks for the info.

  8. PCI –

    Huge fan of the DRIP. I say turn the faucet on and let the DRIP commence!

    -Lanny

  9. I’m always DRIPing my shares, at least at this moment. I enjoy receiving the extra fractional shares (for free with no fees) and getting the increased dividend income as a result of it! Who can really complain about that, right?

    Thanks for the summary and nice read.

    Bert

  10. Hey Rob! I DRiP nearly all my dividends and love the benefits as you covered. There is one REIT (OHI) that I currently don’t DRiP as I don’t currently want to build that position. I’m able to do fractional DRiP-ing through Vanguard brokerage (at no cost), so every cent goes to work. I can turn on/off the DRiP for any stock in my portfolio… a nice feature.
    Engineering Dividends recently posted…Monthly Options Income (Aug. 2018)My Profile

  11. Leo T. Ly says:

    I am aware of the drip program, but I have never enrolled in it. My reason for not enrolling is the flexibility. I combine all the dividends that I receive and make a single purchase of a new or existing stock. I am slowly moving into index ETF now and will start to consider drip in my RRSP and TFSA accounts.
    Leo T. Ly recently posted…How To Increase Your Passive Income By Selling Covered Call OptionsMy Profile

    • Rob says:

      Hey leo

      nothing wrong with your decisions. Interesting that you are starting to convert to etfs though.

      cheers man, keep it up

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