Drips – Fast, Easy and Simple To Setup
Drips – Fast, Easy and Simple To Setup
If you have been following me for a bit, I’m sure you would know how big of a fan I am of drip investing. 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 plan in the investment world. Essentially instead of getting cash dividends you can get more of that companies shares or units.
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 allow it 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. A lot of companies also offer a discount on dripped shares. Algonquin Power for example offers a 3% discount from the average market price on dripped shares. Yes you instantly are up 3% on all your dripped shares. Winning!
Dripprimer.ca – is a great resource to see Canadian stocks and what discounts they offer to take advantage of their dividend reinvestment program.
Signing up For The Drip Program
You may be thinking, 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.
How do you calculate how many shares you will need to get that full drip? Lets use Enbridge for example.
We can see that Enbridge is Eligible for the drip program with rbc, now we need to figure out how many shares we need to receive another stock each quarter. The current price per share is $37.38 and we can see they pay 81 cents per share every quarter. So let’s divide that current share price by its dividend. We get 46.14. So we would need 47 shares to be able to drip a new share each quarter or $1,756.86 invested.
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 and therefore lower your cost basis on your holding. Sweet!
A 10% plus market drop may actually allow certain stocks to drip in more shares. This is one of my favourite things about drips. Its all about getting more drips and letting that compounding work its magic! While everyone else is frantic, you can try to be more relaxed knowing it might actually benefit you long term.
Should I drip My Dividends?
The dividend reinvestment plan isn’t for everyone. I have read numerous bloggers who choose to not enrol 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.
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 setting your dividends to drip? why or why not?
Hope this help you, now Go get those drips!
Hey I’m Rob, creator of Passive Canadian Income.
In 2011 me and my wife had almost $60,000 in debt and a negative $7,000 Net Worth. Through hard work and financial education we paid all that off. Now we are focusing on increasing our Passive Income Streams to make the money work for us. Feel Free to Follow along the Journey by clicking the Social Media links below or subscribing to get notified of new posts on the sidebar.
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.
Welcome, love seeing new faces around here!
Haha I dont want to bust your style, missed your post. Got to check it out.
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.
curious why just those? why not your fortis shares?
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.
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.
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.
very interesting about td i never knew that. Seems they have a couple advantages over the other banks then.
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!
Great to hear you learned something new. Keep on dripping!
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.
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.
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?
I dont know of any others. Maybe someone can help.
Rob and Cris,
Check out this company.
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.
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.
Huge fan of the DRIP. I say turn the faucet on and let the DRIP commence!
Couldnt agree more Lanny.
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.
no problem, great to hear we share the same views.
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.
It would be great to be having every single cent working for me. Just the full drips for now….
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.
nothing wrong with your decisions. Interesting that you are starting to convert to etfs though.
cheers man, keep it up
Which brokerage allow using DRIP other than TD ? And how exactly to set it up? Sorry new to the dividend investing.
No reason to be sorry. Welcome to dividend investing!
Most brokerages offer drip but they may not all pass the drip discount that some companies offer.
We use rbc and questrade for our investing.
Wish you all the best on your journey.
Self declared DRIP fan here. There’s something really satisfying when watching both the share price and units held grow with quality dividend stocks.
Agree with your point on buying these companies for a reason. If rebalancing or an insane stock price deal pops up, new funds can always be added or borrowed.
great to hear Norm, set it and forget it