Do You DRIP?
ADRs, DRIPs, dividends June 2nd, 2008
Many years ago I read a little book by Cemil Otar here in Canada called something like Your Guide to Commission-Free Investing. It was a self-published book and looked it. I think I picked it up in the Chapters Books that used to be near Bay and Bloor in Toronto. Lucky me that I found it then. It might have been another decade before I heard about “dripping” as it has now become even more popular in Canada. (The history in the U.S. might be a different story; there are hundreds of “drips” down there compared with only 40? or so here).
What’s a DRIP?
A DRIP is a dividend reinvestment plan. It allows you to buy shares in a company at no commission. And many/most of them also allow you to have your dividends reinvested with the company in the company shares at no cost either. And this is done automatically. For free - with most companies that offer DRIPS.
How Do I Get One?
In the U.S., many companies will allow you to enrol directly - from them - even right from their website. Go to their website and look up “Investor Relations.” Other companies require that you first own a single share and that that share be held by you in “certificate form.” This is also known as having the share “registered” in your name, as opposed to the share being held “in street name” with your broker.
In order to get your first share, you can:
1) buy one through a brokerage account. Then ask them to certificate it (this costs between $40-$55
2) enrol through a service like MoneyPaper
3) get a friend or colleague to transfer a share over for you (more complicated and they need to know what they’re doing, but this could save you alot of money)
Why Would I Want One?
Aside from being the only free way to invest in stocks? Well, that’s the most important reason. DRIPS are great for long-term, buy-and-hold investors like myself. If you like the idea of slowly building up funds in an account, this is for you. It’s like a savings account where the interest rate is pretty good and keeps getting better once a year. There are several ways to make more money by having DRIP accounts:
1) dividend amounts increase
2) stock splits, so you get more shares, and soon, more dividends
3) share price goes up, so company earnings go up and then they increase the dividend again
4) company gets bought out by another: usually this causes the share price to go up and you have a gain
5) some DRIPS reinvest at discounts: this means you save more money
So basically, DRIPS aren’t any different from investing in stocks any other way, except that the best of these plans are FREE and some even offer discounts (free money).
What Companies Have DRIPs?
There are hundreds. Here are just some of the bigger ones that I can remember off the top of my head. If you want to check on a company, go to their website, click on “Investor Relations” and you’ll find out. Not all companies have DRIPs.
US:
General Electric
Johnson and Johnson
Wal-Mart
Emerson Electric
Pfizer
Proctor and Gamble
Colgate-Palmolive
Coca-Cola
Pepsi Co.
Walt Disney
Home Depot
Lowe’s
Bank of America
(and hundreds more…)
Canada:
Bank of Montreal
Trans-Canada Corporation
Enbridge
Telus
Imperial Oil
Suncor
Fortis
ADRs:
Toyota
BP
etc.
Your Story
OK, so you already know about DRIPS and your grandma bought you a share in Disney when you were 10… I’d be interested to hear all your DRIPPING stories. What are your favourite companies? How often do you contribute? Do you still think DRIPPING is a great investment strategy? How old were you when you started dripping?
For me, it’s a balance between dripping and using conventional brokerage strategies. You can’t beat free investing, but there are great advantages to going with a reputable online discount broker. Less paperwork. Faster return times. Less stuff you have to remember. But what do you think - has dripping been worth it? And if you hadn’t heard of dripping before, are you interested now that you’ve read this?
