Comments on: Diversify DRIP Cashflow By Withdrawing Shares

By: Financial Cents

Financial Cents — Tue, 29 Dec 2009 00:44:14 +0000

Hey MoneyEnergy,

I hope you had (are having) a good holiday!

Question: Do you pay any fees for withdrawing shares from DRIPs with CIBC Mellon or Computershare? I don’t mean selling shares, but withdrawing the shares from the DRIP, and then, depositing those shares into my brokerage account; such as TD Waterhouse?

You wrote above, about withdrawing some shares from the DRIP and depositing them into your brokerage account, periodically I assume, to receive some of the dividends in cash. This seems like a good idea once you have >$100,000 and say 5 or 6 DRIPs running…and you can afford to keep the DRIPs running, but also take some of the cash and redeploy it where you wish.

I am also assuming, as long as you don’t sell the shares, you don’t pay capital gains?

Thanks!

By: Four Pillars

Four Pillars — Wed, 30 Sep 2009 13:44:15 +0000

I think DRIPs are a neat idea but like Philip said – not necessarily all that useful.

As for cheap trades in Canada – I use Questrade which has $5 trades. You only need $1000 to start an account and must maintain a minimum balance of only $250.

By: MoneyEnergy

MoneyEnergy — Wed, 02 Sep 2009 17:51:41 +0000

@Jon202 – I agree, just because it has a DRIP doesn’t guarantee any quality of the investment, you still need to evaluate the company on its own terms. I have cancelled a few of my DRIPs for this reason.

By: Jon202

Jon202 — Wed, 02 Sep 2009 16:26:07 +0000

Enervest is a closed-end mutual fund so I do think it’s a good example. No-fee investing in equities (and some trusts) is optimal when the company regularly increases is diividend (or distribution). So some research is required. Just because a company offers a DRIP doesn’t mean it makes it a good investment.

By: MoneyEnergy

MoneyEnergy — Tue, 18 Aug 2009 02:26:48 +0000

@SW – right. I would assume one would already be diversified across different companies. I guess the type of diversification I’m referring to, then, is slightly different – a diversification based on market outlook or risk? I’m not sure what to call it. If you’re also dollar cost averaging, you’re diversified over time. I too also have more than a dozen DRIPs, so I know where you’re coming from. Like I said, this is a recent revelation to me and previously I would never have given it much thought.

By: SW

SW — Mon, 17 Aug 2009 21:04:17 +0000

I always enjoy articles about DRIP’s :)

However I don’t quite understand your point about “Simply put, 100% reinvestment means you’re not diversified”.

Of course I’m assuming you already have a well-diversified portfolio to begin with, so whatever dividends you receive, will just be placed back into the respective company, which will maintain your diversification. It may get un-balanced, but I always do a re-balance once a year to off-set that.

I can understand the argument if you’re only dripping a few companies, but for someone like me, who is dripping 12 companies, I feel that the “diversification” aspect seems moot.

By: MoneyEnergy

MoneyEnergy — Mon, 17 Aug 2009 14:33:59 +0000

@Philip – totally agree on your last point, this is more the direction I’m headed in. I’ll still keep my DRIPs open for the free share purchases, though. In Canada, sadly, the majority of commission fees are still very high ($29!) unless you have $100k in the account or do a high volume (or certain #) of trades each month. There are some brokers with nominal commissions of $9.95 etc., but the last time I checked, there were other drawbacks to using them (eg., I think you had to keep a certain level of cash just idling in the account, which I didn’t want to do).

By: Philip Brewer

Philip Brewer — Mon, 17 Aug 2009 14:24:45 +0000

DRIPs were really important in the 1980s, when transaction costs could easily eat up a huge fraction of your investable cash. Once on-line brokers pushed commissions to the $10 range, though, I think the commission-free aspect of DRIPs made a less compelling story.

The other thing that DRIPs provided was a certain kind of discipline–the dividends got reinvested in stocks whether you thought the market was going up or down. If your natural inclination was to sit on cash waiting for a “good buying opportunity,” this sort of discipline stood you in good stead from the early 1980s through the mid 2000s.

Personally, I turned off my last DRIP a couple years ago. Dividends go into my brokerage account, and I invest them, not in the company they came from, but in whatever seems like the best investment at the moment.