DRIP Investing for Dividend Growth, Cashflow and Financial Freedom

Today’s online discount brokerage investor may never have had the experience of seeing or touching an old-school stock certificate like the one in my previous post on canceling your DRIPs.

Ownership of stocks today usually falls in the hands of the broker you buy and sell through.  When the broker holds the stocks for you, it’s called having your stocks in street name.  The shares are legally yours, but the name they are held under for the purposes of trading is the name of your broker.

Stock Certificates Indicate Ownership of Shares

But you can call your broker and ask to have your shares (all of them, or just some) certificated.  This means that you will pay your broker to transfer some or all of the shares of a given stock into certificate form.

Having your shares in certificate form can cost anywhere from $20-$200 per certificate depending on the broker you deal with (I would not recommend paying $200+ for it – $50 is a good average).

If you have a physical, paper, stock certificate, it means the shares are now registered in your name.

Benefits of Holding a Stock Certificate

Holding your shares in certificate form is helpful for a few reasons because it means that the stock is now held in your name and not under the broker’s:

1. You are now able to redeposit your shares into another broker.
2. You can transfer some or all of the shares to someone as a gift.
3. You can use the certificate to enrol in a DRIP program.
4. Allows you to withdraw shares from a DRIP and deposit with broker.

With the possible exception of #2, it is true that the need for having a stock certificate has diminished over the years and especially with the advent of electronic and online media.

But there are still many DRIP programs that require you to have a stock certificate in order to enrol (all of the DRIP programs in Canada, for example).

As gifts, many parents and grandparents still think they look really neat – you can hang it in a frame on your wall, and it provides a quaint, physical form of reminder that you own shares in a corporation.  Having the physical reminder can be a bit of motivation and inspiration to some people, especially kids and teens.

Disadvantages of Having a Stock Certificate

That said, there are downsides to holding stock certificates over long periods of time.  (I’m not sure you’d want to hold them for a short period of time – if you’re just trading, it will be too expensive to buy a share and its certificate if you’re just thinking you’ll sell it soon anyway).

The major problem is that if the company goes bankrupt, merges with another company, or is sold to another company, then you will have to (1) be at home to receive the news in the mail (or online and checking all your account statements) and (2) mail back in the certificate and fill out the necessary forms.

If you travel a lot or otherwise don’t like to keep up on the paperwork and routine mailouts for all of your stocks, then it can be a big hassle to deal with the unexpected, short-notice demands to turn certificates back in to the broker in order to receive your new shares or get your money back.

But will stock certificates die out, never to be used again? It’s possible.  Right now it seems the only thing keeping them necessary is some of the regulations that transfer agents have.

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