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Closing your DRIPs and SPPs, transferring your shares to your brokerage

 

A few months ago, I wrote a comprehensive series about do-it-yourself (DIY) stock investing using full Dividend Reinvestment Plans (DRIPs) that include Share Purchase Plans (SPPs).  I wanted to share my DRIPping experiences with readers because I think this process is an excellent way for small-time investors (like me) to accumulate shares in established companies that pay dividends over time.

Depending on the company and what it offers investors via their DRIP plan, you can start owning shares in many great Canadian companies with just $25 or $50 cheques – and the cost of a stamp.

You send your small cheques to the company transfer agents and they do all the work; they buy all the shares and they reinvest your fractional shares – accelerating your stock ownership.  I know this is true because I’ve been there and done it.  Once you’ve gone through the process to setup your full DRIPs and SPPs with company transfer agents, everything becomes routine.  You just need to let the magic of compounding do its thing.

At some point, after a few years have passed maybe, you might be in the fortunate position to own enough shares to start a synthetic DRIP with your discount broker.  That is, you now own enough shares so when dividends are paid dividends buy at least one whole stock share.   This is a great position to be in because you don’t need to rely on the transfer agents or your cheques to buy shares….your dividends do it for you.  Money that makes money, makes more money.

For me, when this happened (I owned enough shares to consider running a synthetic DRIP recently) it was the trigger for me to move my shares from the transfer agent to my brokerage account.  If you’re in this position or you’re getting close, this post is for you!

Here is the process I followed and some considerations to think about along the way.

Step 1 – Write a letter of direction

Basically, this letter spells out what you want the transfer agent to do.  I’ve used the following wording in my letters:

Hello,

This letter is to inform you I would like to withdraw and close all shares of <insert name of company> common stock from my Dividend Reinvestment Plan (DRIP).   At the time of this letter, I understand I own <insert #> whole shares.

Please send me a share certificate for all whole shares owned. 

At the time of this letter, I also understand I own about <insert #> fractional/partial shares. 

Please send me a cheque for any fractional/partial shares owned.

This request should completely close my DRIP with you.  I have attached a recent statement stub from my dividend reinvestment plan to verify my name, address and account information.

Thanks for your assistance.

<My name and contact information>

Step 2 – Complete DRIP statement stub

With every optional cash stock purchase or every time your fractional stock shares are reinvested, the transfer agent will send you a statement.  If you want to close your DRIP and SPP, you’ll need to detach a portion of this statement and complete it.

For Computershare, use Part B on the back of the statement, and select “Issue” - a share certificate for all whole shares and a cheque for any fractional shares.  Make sure you sign and date the statement stub.

For Canadian Stock Transfer Company, depending on the company statement, indicate termination from the plan and/or request a share certificate for all whole shares and a cheque for any fractional shares.  Make sure you sign and date the statement stub if indicated.

Step 3 – Take letter of direction + statement stub + stamp and mail away!

After your letter and statement go into the mailbox, wait about 3 weeks.  After that time period, you should receive your share certificate and a cheque.  Mostly likely, your certificate and cheque will arrive via regular postal mail.  Your certificate and cheque may not arrive at the same time, they could arrive a couple of days apart.  (This happened to me a couple of weeks ago.)   Once you get your share certificate, you’ve got some options.  You can visit the branch where your brokerage account is and fill in some paperwork with a banking representative to deposit the certificate into various accounts.  Some account options might be:

  • Non-registered brokerage account,
  • Brokerage TFSA, or
  • Brokerage RRSP.

I suppose you could keep your share certificate around the house, but I wouldn’t advise that.  That piece of paper is probably worth quite a bit of money!

Regarding the cheque, you should probably cash it right away.  It really doesn’t matter what account, it’s your money.

Going-forward, be aware of some things:

  • It might take a week or more for any share certificate to settle in your account.
  • Share certificate deposits into registered accounts such as your TFSA and RRSP will count towards your contribution room.
  • Make sure you keep records for your adjusted cost base, even after your shares are deposited.  Why?  If you want to deposit your shares into your TFSA or RRSP, you may incur capital gains.  This deposit will be considered a “deemed disposition” meaning your shares are considered sold and re-purchased for your registered accounts.  If you have profits, be prepared to pay those capital gains come tax time.
  • If you transfer your shares at a loss, you cannot claim it as a capital loss.
  • To reduce tax implications, your adjusted cost base should be close to the current stock trading price before moving shares into your brokerage TFSA or RRSP.  In this regard, time your deposit accordingly.

I recently followed this process to max out my TFSA for 2012, with a dividend-paying stock.  That stock is now DRIPping synthetically, providing tax-free dividends for as long as I own the company and as long as the company pays me.  Given this company has been paying dividends for decades, I like my chances.

Thanks to dividend-paying stocks, stock transfer agents, my brokerage account and some patient investing – this was a great process to earn some tax-free income.   It took me a few years but all I needed was a plan.  :)

Are you a fan of DRIPs or DRIPping?   Have you followed this process above?   

Share your thoughts!

Filed in: DRIPs

20 Responses to "Closing your DRIPs and SPPs, transferring your shares to your brokerage"

  1. MOA This is a valuable post, as once you have enough shares to “synthetically DRIP” it makes so much more sense to transfer the shares to your brokerage account. Then you can take advantage of the tex sheltered dividend income in your TFSA or RRSP (and get the deduction too!). TFSA for you isn’t it?

    I’m just starting to set my shares up with Computershare now, and I’m finding it all moves at a snail’s pace, so very sloooooowwwwwwwly ! I’m used to pressing the “buy now” button or doign PAC’s for index funds etc. Oh well, its definitely worth it for building up my stock postiions without having to pay fees :)

    I’ll bookmark this post and come back to it in four years!

    Cheers
    The Dividend Ninja

    • Thanks Ninja!

      I have to give credit to a reader of mine, who wanted to see this post.

      While you definitely lose the compounding with fractional shares, you can have the best of both worlds when the stock is now DRIPping synthetically in the brokerage account:

      1) you get new whole shares every quarter AND
      2) you get some leftover cash to use for new stocks or debt payments. The process certainly works for me.

      Yes, the transfer agents take their time, their processing time is longer than brokerages; it takes some getting used to but they rarely make mistakes…at least they never did for me.

      It will be interesting to know what you do, when you have 100s of shares in a few companies, in a few years, bought commission free ;)

  2. Sampson says:

    I see several disadvantages.

    1) No fractional shares – not all your money is working for you.
    2) Trading commissions – if it is a stock you plan to continuously buy, buying small amounts or when you have some extra cash for FREE is hugely beneficial.

    • @Sampson,

      Thanks for stopping by, I always appreciate your wisdom on various blogs and forums.

      Yes, you give up the fractional shares not compounding for you, but I feel I’m getting the best of both worlds.

      1) Whole shares are being purchased every quarter, for free via synthetic DRIP and 2) the cash leftover from dividends paid can be used for new shares in other companies or pay down my mortgage.

      Once my DRIPs are set-up with a margin of error (i.e., there will be leftover cash), I tend not to buy more of that company – I’m on the hunt or I’m saving for new companies to diversify my portfolio. With this process, my dividend income grows by about $50 per month.

      I recall you used DRIPs and SPPs with transfer agents? Are you still?

  3. Thanks so much for writing this post!!! Very valuable information indeed. I have the same thought process/plan as you do, DRIP with the Transfer Agent until I have enough to do synthetic DRIP, then transfer it over to my TFSA. I intend to eventually max out my existing TFSA room (this may take me a couple of years as I have a few other things I want to explore) and every year thereafter. Thanks again for the post, this now closes my loop for my strategy :).

    The dividend from my TFSA will definitely be one source of my retirement/financial independence income stream. Thus, the money and/or shares I will be depositing into the TFSA is a one way street. I am going for the long haul.

    Out of curiosity, are you investing in real estate also?

    • @SRL,

      No problem, I’m glad you pushed me to write about it!

      I definitely see the TFSA being a great retirement income tool. If they don’t change the rules, this thing will be amazing in another 20 years. Simply amazing.

      As for investing in real estate – no. My wife and I used to own a rental property, but no longer. Too many headaches. Instead, I own REITs :)
      I get some solid returns (from REITs) and I don’t have any landlord headaches. Win-win.

      How about you?

  4. MoneyCone says:

    Very nice howto post MOA! Never underestimate the benefits of DRIPping!

  5. Anonymous says:

    @My Own Advisor

    No real DRIPs for me. Couldn’t be bothered to trade or buy a single share certificate, and it would be far too expensive to buy them from the brokerage at $50/ea.

    Some of my holdings are large enough to take advantage of synthetic drips, some not. I’ve actually been considering turning the tap off and having some more control over what is being purchased. Will have to see though, it’s tough to take an active approach when the lazy-man’s (DRIPing) is just so easy.

    • @Anonymous,

      True, brokerages charge about $50 + HST for the certificates.

      Regarding your comment, turning the tap “off”, I might do that in the near future for a couple of companies. I own enough of those, and would like to get the cash and reploy it for other companies. For companies I want to own more stock of, like Enbridge, I’m going to keep the DRIP tap “on”.

      DRIPping is just sooo easy – part of it’s charm for me, which I also use for my ETFs as well. I DRIP ETFs in my RRSP.

      Do you own any ETFs or just stocks?

      Thanks for your comment!

  6. Elemag says:

    Mark, as you probably remember, last year I mentioned that I had enough shares of BNS and ENB to start synthetic drips in my brokearge accounts. Well, ENB got transfered to my Self -Directed RRSP and I also requested and received share certificates for BNS and Suncor. Now, I haven’t transfered these two companies to my TFSA yet, because I would like to somewhat control the capital gain I must pay tax on. I am not in favor of market timing and someone can argue that this is the case here. However, I already own the shares and whether they are certificated or not, the dividends still get reinvested at Computershare until the moment I transfer them into my TFSA. Another point I would like to make is that I wouldn’t necessarily withdraw all the shares from the Transfer agent. I think it’s a good idea to may be leave at least one, so you can still take advantage of the OCP (fee free) plans. This way I dollar-cost- average instead of buying in bulk. Very informative post!

    • @Elemag,

      Yes, I do remember – very well done with ENB, BNS and Suncor. Excellent companies to own – but you already knew that! I own 2 of those.

      I like your comment about keeping one share with the transfer agent, to take advantage of more Optional Cash Purchases (OCPs). That is a great thing to do. I considered that, but only briefly, since I wanted to start consolidating assets. For others who don’t want to do what I did, I do think staying with the transfer agents is a great thing to do for fractional share compounding – that definitely accelerates stock ownership.

      Thanks for your detailed comment Elemag.

  7. @My Own Advisor
    Good point about leaving one share with the Transfer Agent. I’ll have to figure out what I want to do when I cross that road..

  8. @My Own Advisor
    Real estate does perk my interest. I haven’t yet but I am seriously thinking about it. In fact, the city I am interested is Hamilton, Ontario. I much rather invest in Toronto (where I want to be permanently one day due to family considerations…all my extended family are there) but I simply can’t afford Toronto. I still have a lot of ground work to do before I dive into real estate but I want to at least try it. (I set a wide goal to acquire one property by the end of this year :)).

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