You can invest as little as $25 whenever you want with DRIPs (dividend reinvestment plans). Perhaps you have already heard about DRIPs or dividend reinvestment plans. Not all companies offer them, but the ones that do obviously pay dividends and thus will tend to be at least either more stable, less volatile stocks, or at least more dedicated to public transparency, since a dividend payment is a very public way to prove your profits.
I should point you first towards several other posts that I’ve written on this topic:
- What is a DRIP?
- Why You Should First Invest in DRIPs (Dividend Reinvestment Plans)
- Buy Stocks Direct with MoneyPaper’s Guide to Direct Investment Plans
- How To Start A Direct Investment Plan Now
- The Top Ten Canadian DRIPs (Dividend Reinvestment Plans)
- Wealthbuilding in Your Fifties and Sixties: Why DRIPs Work At Any Age
Be sure to check these out – I’ve already explained many of the basics in here. Recently a reader asked me how she could get started investing in these. And then not too long ago, J.Money from BudgetsAreSexy was thinking about getting into some DRIPs and commenters over there were asking about it too. Also, I read another comment on The Digerati Life about how a young person could get started investing with little money. So I thought it would be worthwhile to write another post specifically focusing on this, since I think it is really important to get started investing early (a college money tip you should put into practice as soon as possible).
Step #1 – Open A Brokerage Account
Zecco, Scottrade, TD Waterhouse, BMO InvestorLine, and more. There are many brokerages. I recommend a discount broker that is online – where you can place trades yourself, online. Go with one that has cheap commission fees (you’ll only be paying them once, but it’s still nice to save money), but is known for good service and has a longstanding reputation. I’d avoid anything that’s just opened up shop in the last year, for example. Check online for recommendations.
Step #2 – Put Cash Into Your Brokerage Account
You’re going to have to find out how to transfer or deposit money into your new account. If the brokerage is operated by your banking institution (as many of them are in Canada), you might even be able to link it to your checking account and do the transfer online from within your account. Now that’s convenient! I’d try to do that if you can make it work for you.
Step #3 – Research DRIP plans and Figure Out Which One You Want
Not all companies that can be bought through a broker offer DRIPs. So know beforehand what DRIP it is that you’re looking to set up. Johnson and Johnson is a great example – so is Pepsi. Both offer DRIPs. But DRIP plans are all different. Some even charge fees. Those aren’t the ones I’m talking about. There are plenty that are completely free, and these are the ones you should go after. Read my post on MoneyPaper’s Guide to get a sense of some of the plans available through U.S. companies.
Step #4 – Buy the Stock Through Your Broker
How many shares should you buy? This depends on you and how much you can afford to spend. In order to start a DRIP, usually you only need to buy just one share. So let’s assume you’re on a tight budget for the purposes of this post. Of course, if you have more to spare, you might want to leverage the one-time commission into a lower percentage of your total costs, in which case buying more than one share is a good idea too.
Step #5 – Order It In “Certificate Form”
After you wait a few days for the trade to “settle” in your account, you can then move on to the next step, which is ordering a certificate for your stock. You’ll have to call your broker’s hotline and just ask if you can “have your share of ______ certificated.” They should know what this refers to. What you’re doing is taking the share out of its “street form” (when the brokerage owns it) and transferring its ownership under your own name. So make sure you verify your correct name and address with the person on the phone. Also, you’ll need money to pay for the certificate, but this will be the last time you’ll ever have to pay any fee to invest in that company. Expect to wait two weeks for the certificate in the mail.
Step #6 – Enrol in the DRIP
While you’re waiting for your certificate to arrive, you might already receive some information from the company’s registrar agent about enrolling in their DRIP. Simply fill it out and mail it back in. You want to make sure that you’re registered for both (1) dividend reinvestment AND (2) optional stock purchases/optional cash payments. The latter means you’ll be able to buy more stock with no fees. The former simply refers to the actual reinvestment of future dividends.
Step # 7 – Wait for the Registrar To Set Up Your Account
Enough said. This can take up to a good month and a half, depending on when you entered the company’s quarter cycle. Be patient. Get acquainted with the company’s quarter schedule – when they record shareholders and when they pay dividends. Plan your future optional cash contributions (aka stock purchases).
Step #8 – Send a check for the Optional Cash Payment/Stock Purchase
Check the plan for minimum amounts required. If a company says a $25 minimum is required, it means that if you choose to send in a payment it must be at least $25. You are not required to send in a payment, ever, at all. That part’s up to you!
And there you have it. Those are the basics. Feel free to ask me if you need any more clarification on the above points. Like I said, I’ve been doing this almost ten years now, so I’ve forgotten somewhat what it’s like to start from scratch (although I have added to my new DRIP holdings as recently as last year). I currently own around 20 DRIPs. This is in addition to my regular stock portfolio, of course!
So let me know what you think. Don’t forget to grab my RSS feed for free updates, and follow me on Twitter @MoneyEnergy.
Related Posts - How To Start A Direct Investment Plan Now
- Why You Should First Invest in Dividend Reinvestment Plans (DRIPs)
- Top Silver Mining Stocks
- The Top Ten Canadian DRIPs
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{ 30 comments }
I don’t think you can beat a nice Drip Program. Although, Zecco comes close with their 10 free trades a month.
Too bad us Canadians aren’t allowed to invest through US brokers… otherwise I’d be at Zecco in a flash…
Very good! Thanks for the review. I need to look into this a bit more. I don’t know anything about these Drip programs.
Thanks MoneyEnergy -
I currently do not do much investing and really had not heard of DRIPs before looking at your site. I’m definitely interested in checking it out now though!
DRIPs is something different – worthly checking
Thanks for the info…I’m on step 1 – can’t wait to start – starting with scotiabank.
@missnb20 – Let me know how it goes! Congrats on getting started.
When you get a certificate, do the stock disappear from your brokerage account or they stay there? When the new stocks are bought from your dividends, do you automatically see them under your brokerage account? Can this be done under TFSA? Thanks.
Hi Kate, if you call your broker and ask for a share to be certificated, they pull it out of your brokerage account and they mail the certificate to you. That piece of paper is the share itself. Don’t lose it! You are now the owner of that share.
It sounds like you might be confusing these direct DRIPs with the so-called “synthetic DRIPs” that you can get through Waterhouse, Direct Investing, etc. If you have a synthetic DRIP, TD Waterhouse will reinvest dividends back in the stock IF they are enough to purchase at least one whole share. When this happens, yes, you will see the transaction. If you elect to just take your dividends in cash inside your brokerage account, you will also see this transaction. I haven’t looked into doing it under the TFSA label but I imagine this would be possible.
Hi all,
I have started my DRIP plan with three stocks. In reference to Kate’s question and others that do not know, when you get your ceritificate, it is sent to you by the transfer agent(Computershare, CIBC Mellon) of that company. They keep record of your 1 share as well as they are the ones you will send your documents to for the stock options. Once you have filled out all the proper paper work and send in your check for the shared purchase plan, you are all set to go. Some companies will require a cheque every quarter just before the dividend is payed out, some will take a cheque every month. You can also view this online with the transfer agent. Some companies allow you to register to be in the reinvestment plan online, but all SPP’s you have to fill out a form for.
I hope that helps.
@Brian – thanks for the comment. Just to clarify, though, no DRIP plan *requires* that you ever send in a payment – rather, if you want to send one in, there are restrictions on when and how often you can do so (and the minimum amount). Hence why it’s called an *optional* cash purchase.
@MoneyEnergy – Thanks for correcting me. My mistake.
Hello,
do you still have to order the stock in “Certificate Form” if the brokerage (RBC) already does the DRIP for you? I am wanting to do the SPP as well, so am I able to just send money for that directly to the company that I own the stock in?
thanks Keith
Hi Keith – if you want to let RBC hold the stock for you (so that you receive dividends in your RBC account and RBC reinvests them for you), then you do not need a certificate. The purpose of ordering a certificate is to take the stock *out* of the brokerage and into *your* name – if you do this, then you will receive a dividend cheque in the mail (unless you enrol in the DRIP through Computershare/CIBC Mellon. Sounds like this is what you should do if you want to SPP – because technically speaking, there isn’t an SPP through these “synthetic DRIPs” at the brokerages.
hi,
What is the difference if you cannot get the cerfification form (NOT CHEAP OVER 200$) but you asked your broker to enroll you in DRIP?????
Tks,
If you enrol in your broker’s “DRIP” (what many call a “pseudo-” DRIP or “synthetic-” DRIP), it means that 1. your dividends will only be reinvested if they are enough to purchase at least one new share, and 2. you will not be able to purchase new shares for free (you’ll still have to pay the commission. These are the basic differences, hence why it is not my preferred method.
Hey, thanks for doing this, very informative. If I buy 100 shares and get those shares certificated, the company will send me a share certificate that specifies 100 shares. If I DRIP or purchase additional shares through SPP, will I receive additional certificates or is a new share certificate sent with the total amount. Will any certificates show fractional share purchases in the case of a DRIP? And how is the SPP share price determined if you purchase that way. Thanks.
@badcaleb – As far as I know, certificates will never be for fractional amounts. The company/transfer agent will send you a check for the fractional amount instead. And no, you would not receive certificates with each purchase unless and until you specifically ask for a certificate for X shares.
Hi there, I’m about to start with a DRIP and wanted to know how I ensure that it’s a registered for tax-savings purposes. I want to move some money that I have in an RRSP savings account into a few DRIPs. How do I make sure the funds remain RRSP eligible?
Thanks!
@MoneyEnergy – Thanks for responding. Happy New Year.
@AJ – I don’t personally have DRIPs in RRSPs, but I imagine that if you have a self-directed RSP you could arrange to “synthetically” DRIP the stocks you’re interested in. I know that all the main DRIPs are RRSP eligible. Someone please correct me if I’m wrong. How do you guys keep your DRIPs in RRSPs? Keep in mind that dividends are taxed at a more favourable rate than interest and employment income… you might consider putting them in your TFSA, too.
Hi;
Good job! I am wondering if you need to cash back your money How do you sell your certificat ?
Thks
Hi, my discount broker is BMO. I have a RRSP account with them. I just called and they said that to open a non-RRSP account I have to pay $22/quarter.
Ques 1: Is there a way around this? How can I buy my first share from discount broker without paying annual fees? The fact that I have an RRSP account with BMO doesn’t seem to make a difference.
Ques 2: Can I DRIP inside a TFSA?
@bony – you can deposit your certificate back with the broker you bought it from. “Depositing” will put it back into the broker’s name, it will be in your account, and from there you can sell it like any other stock.
@shaila – I have never heard of a quarterly fee for holding funds/stocks outside of an RRSP. Waterhouse doesn’t do this. What type of non-RRSP account are you talking about? You don’t need to pay any fees just to have a brokerage account. Ask them if it’s free if you’re signed up for online brokerage services (i.e., electronic brokerage services). As for doing a DRIP in a TFSA, you could arrange one of those “synthetic” or “pseudo” DRIPs – where you call and ask the brokerage to reinvest dividends. But they will only reinvest if your divs are large enough to buy at least one whole share.
Hey there, I am confused as to what my next step should be.
Say if I want to DRIP BMO, I need to first buy some BMO stocks (lets say $500 worth). I have an RRSP account with BMO investorline already to trade stocks for my RRSP. DRIPs have to be outside RRSP. What kind of an account do I need now? I just asked for a non-registered account and they said unless I have a balance in excess of $100K, there is a fee of $22/quarter. I am so confused!!
Another thing, can I DRIP inside a TFSA? If yes, how does this work?
Is it more expensive to get my first share for a DRIP account using money paper (http://www.directinvesting.com) compared to through a discount broker? Which do you recommend?
Just an FYI for anyone else following this thread.. I just asked about DRIPs with Questrade, and they are of course the pseud-DRIP’s which only allow purchasing in full shares, may not be tooo bad for a larger account, for for a smaller account.. useless as it would take forever to build up enough to buy a share.
I then asked about getting a certificate.. yeah.. $300 to do it.. I’m now searching for alternatives.
I should also post back and say that after calling my other broker TD.. they will do it for $50, but then you have to purchase the share as well which your commission costs may be anywhere from $30 to $10.. still MUCH better than $300!!
@Len – yes; I use TD – if you invest a large enough amount you’ll make back your commission in no time. Same goes for the certificate cost. It’s still too bad that we pay more than Americans do at TD Ameritrade (ripoff?), but hey, just buy some TD bank stock while you’re at it.
I got my first share for 7 companies in the share exchange board. See link:
http://dripinvesting.org/Boards/BoardMsgs.asp?BID=8
Look out for group buys and be quick to respond.
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