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Getting started with DRIPs and SPPs (Part 4 of 4)

 

DRIPping Canadian dividend-paying stocks can be fun but more importantly, it can be an excellent wealth-building strategy.

Imagine building some passive income from Canadian dividend-paying stocks over the next few years, commission free, buying these stocks whenever you want!   Does this sound too good to be true?  It might but this process does really exist and through my comprehensive series entitled Getting started with DRIPs and SPPs, Parts 1, 2 and 3 posted on my blog and on Dividend Ninja, hopefully I’ve spread the word about this great process.

To date, I’ve:

Today’s post, Part 4 of Getting started with DRIPs and SPPs is the series finale.  It’s the big finish!   This post will share how to take the share you now own in certificated form and get it registered with the stock transfer agent to start DRIPping.  It will also include some more of my own experiences and perspectives with DRIPping, including what I’m doing next with the stocks I’ve DRIPped.

First, a quick recap about the DRIPping process I followed…

Step #1 – Research DRIP plans and determine the company you want

Step #2 – Open a Discount Brokerage Account and put money in it

Step #3 – Buy the stock through your Discount Brokerage Account

Step #4 – Order the stock you purchased in “Certificated Form”

 

Let’s move on…

Step #5 – Start company transfer agent paperwork to enroll the stock in DRIP with SPP

So you’ve made the buy, the transaction has settled and you’ve asked for your share in “certificated form” from your discount broker.   Or, maybe you got your share from a Share Exchange Board.  Good work so far!

Let’s start some paperwork for submission to the stock transfer agent.  You can visit the transfer agent’s website and download required forms to initiate your full DRIP and SPP.  What type of paperwork?   Well, the DRIP Circular or the Plan Brochure will tell you so you should have already read that, but if you’re not sure you can call the transfer agent to talk it over.   The transfer agent will confirm what forms you should be completing to enroll in the DRIP and SPP.

Usually you need to complete a few forms:

  • One associated with the dividend reinvestment plan; to state you want all fractional dividends reinvested,
  • One associated with the share purchase plan; to state you want to submit cheques to buy more stock, and
  • One confirming this DRIP enrolment is not associated with any money laundering activities.

Beyond these forms, as a suggestion, I think a “letter of direction” is helpful.  This way you can spell out in a personal letter to Computershare or Canadian Stock Transfer Company your intentions to start the full DRIP and SPP with them, just in case some of the forms completed have some minor errors on them.  It’s not a big deal, errors on the forms but if there are major mistakes the transfer agent won’t process your request.  When in doubt about how to complete any fields on the transfer agent forms, don’t hesitate to call them.  They are there to help you.  I’m guessing there isn’t a question they cannot answer when it comes to DRIPs and SPPs.  I know I’ve asked them a bunch of questions over the years and I always got an answer.

Step #6 – Mail your transfer agent forms and letter of direction

Once you have your share certificate in your hot little hands, remember two things:

  1. Complete the transfer agent forms with the share certificate number identified on your certificate.  If you’re not sure what that number is, call the transfer agent.
  2. Keep that share certificate in a safe place!  Don’t send your share certificate to the transfer agent!  This is a real share, in a real company, and you want to hold onto it!

Mail your forms and letter direction to the address specified on the forms.  It will take a few more weeks to get your share enrolled in the DRIP and SPP.  Be patient and follow-up in 2 or 3 weeks with a phone call to the transfer agent to ensure everything got processed the way you thought it would.

Step #7 – Send a cheque as part of your share purchase plan (optional cash purchase), and enjoy!

Once your share has been registered with the transfer agent, you should get some paperwork from them in return including a form called an optional cash purchase form.  Every month or quarter based on what the DRIP Circular or Plan Brochure will allow, you can write a cheque, complete this optional cash purchase form and mail the form with your cheque to get your stock purchases commission free.  Yup, your money for something and your stocks for free!  There is no requirement to send in a payment every month or quarter.  Depending on the company DRIP however, you must be mindful of the minimum purchase amounts required.  Some stocks have no minimum (Bank of Montreal for example), others have minimums of $100 (like CIBC, Bank of Nova Scotia for examples) and some companies are even higherRemember, one of the cardinal rules of investing, understand what you’re investing in.  DRIPping stocks is no different.  That means if you decided to DRIP a company that had a $100 minimum purchase the cheque you must send to the transfer agent must be at least $100.

After dividends are reinvested and/or everytime your cheques are cashed, you will receive a statement from the transfer agent with transaction details.  You will continue to receive regular statements detailing your holdings for each company you own as long as your stocks stay in the DRIP with SPP.  Keep all statements/records for tax purposes.  Don’t lose them!   You’ll need this information to calculate your adjusted cost base for the stocks you’ll accumulate over the years.  Don’t know how to calculate your adjusted cost base?  Don’t worry there are lots of references online including some templates and instructions to follow on Jon’s site.  Thanks again Jon!

And there you have it!   You’re done!

Welcome to the world of DRIPping!

Now, for the big disclaimer…

Going forward, all these details written within in comprehensive series Getting started with DRIPs and SPPs I’ve recently STOPPED my DRIPs with SPPs with company transfer agents.

I’m kidding right?

Why on earth would I do that?

How on earth could I do that after extolling the benefits of this fine process to you in this monster blog series?

Well, I stopped my full DRIPs with SPPs recently not because I don’t believe in this great process but because of this amazing process.  My strategy has been, and still is, once I have enough shares built up with company transfer agents to start synthetically DRIPping this stock back with my discount broker, I revert to that.

Over the last couple of weeks, I’ve been fortunate to achieve this status with Fortis and Bank of Nova Scotia.  I’m currently in the process of transferring my shares from the transfer agent back to me then to my discount broker.  This way, I’ll soon be running synthetic DRIPs for these two great companies; getting whole shares purchased using reinvested dividends (commission free of course) quarter after quarter after quarter.  The money left over from dividends paid and not reinvested will be used to buy new stocks or start another DRIP!   Over the next couple of weeks, there are some things I need to do with my discount broker to get my synthetic DRIPs going, but that’s another post for another day.

The thing is folks, I would never be in this position, this fast, to synthetically DRIP many of the companies I do today without the power of full DRIPs and SPPs; sending cheques to transfer agents when I could, on my time, paying no commissions, getting fractional shares reinvested to accelerate my ownership in great Canadian companies.  I own a world of thanks to full DRIPs with SPPs.   I guess that’s the reason why I felt compelled to write these posts.  I want to pay it forward, help others understand what I did and share what I know.

DRIPping doesn’t appeal to everyone.  That’s OK.  As you have read it takes work.  Even then, people don’t follow this approach.  As investors, we all have different investing goals, objectives and strategies to execute.  Indexing and DRIPping dividend-paying stocks happen to be mine, a two-pronged approach.  You need to determine what your goals are.

For those that were curious about DRIPs with SPPs, I hope I’ve satisfied a bit of that curiosity in my series Getting started with DRIPs and SPPs.  I’ve enjoyed writing it and I hope you’ve enjoyed reading it!

My Thank You List…

A BIG thanks to Dividend Ninja for allowing me to post some of my content on his outstanding blog.   He has been a great supporter of my blog and my investing journey from day one.

Along with the Ninja, I also have the following key folks to thank, some who helped me learn the DRIPping ropes, others who I continue to bounce silly questions off of, and still others for their support of my dividend-investing journey and this blog:

  • Derek Foster, for The Lazy Investor and conversations in Ottawa.  Thanks Derek!
  • Jon, for running Canadian DRIP Primer, one of the best DRIPping sites in Canada.  Thanks again Jon!
  • George Smyth who runs The DRIP Investing Resource Center and all the great moderators like OperaBob, Wayneman, dfish, drppingsoprano and others who manage the message boards.  These folks are invaluable resources for all would-be and current DRIPpers!  Thanks guys!
  • The Wealthy Canadian, for his support and mentorship.  Thanks!
  • The Passive Income Earner, for his knowledge about DRIPping and dividend investing.
  • Last but not least, former blogger ThinkDividends, for his insight into the world of dividend-paying stocks and common sense approach to investing.

Your turn….

What are your thoughts about DRIPs and SPPs?

Did you enjoy this series?

Filed in: DRIPs

14 Responses to "Getting started with DRIPs and SPPs (Part 4 of 4)"

  1. A very thorough guide MOA. Just out of curiosity, why do you want to synthetically DRIP the stocks as opposed to method you just painstakingly detailed? What is the advantage there? Also, do the majority of discount brokerages offer no-fee synthetic dripping?

    • @MUM,

      Thanks for your kind words about the series!

      I want to DRIP my stocks synthetically since most of the companies I own, are blue-chips. They have regular, rather, very established dividend history and they also have a history of increasing their dividends over time. The advantage here: once my stocks are in my brokerage account, I now have the option of transferring these same stocks to my TFSA. This means, as you know, tax-free dividend income.

      Also, with the stocks now in my brokerage account, while only whole shares are bought with dividends reinvested (not fractional shares like the transfer agent), I can now use any extra cash not used to buy whole shares, to accumulate to buy new shares, start new DRIPs, pay down debt or other.

      I’ve basically leveraged full DRIPs with SPPs over the years to accelerate my ownership in Canadian dividend-paying stocks, commission-free only to move these shares back to my brokerage account to continue building more shares, also commission-free. :)

      Does that make sense?

      As far as I know, the majority of Canadian online discount brokers (all big five banks) do offer no-fee DRIPping. I’m pretty sure QTrade and others do as well.

      Thanks for your questions!

  2. MOA Thanx for taking the time to write this stellar series, and share it with my readers also. It’s been a very valuable series of posts, and inspirational as well!

    Your right, if you have enough shares built up to synthetically DRIP, then you should take advantage of transferring them over to a registered account like the TFSA or the RRSP. Deferring taxes, even from dividend income, is the name of the game!

    Cheers

    • Hey Ninja,

      Again, I really appreciate your support for the series! I enjoyed writing it.

      As for building up enough shares with my brokeraage, hopefully I can “get there” with all my stocks over the next couple of years. I’m synthetically DRIPping about 15 stocks now, a few more, I can’t because I don’t have enough shares for reinvested dividends to “do their thing”. Hopefully I can work on those over the next couple of years.

      Over many more years, I’d like to buy another 10 established dividend-payers and work towards synthetically DRIPping all those.

      About 30 Canadian dividend-payers would make me relatively diversified. Thoughts?

  3. Elemag says:

    Mark, if anyone were to ask me about DRIPs and SPPs, I would email him/her a link to your excellent post.

    As you know, I have been dripping since late 2008 with much success and just like yourself, I am ready to transfer BNS and ENB to my brokerage accounts for synthetic dripping. I like to give myself some extra room on the amount of dividends paid. For example, my goal was to get at least $60 in quarterly dividends from BNS, which is a lot higher than the current market price. By doing this, l wanted to make sure I would not fail in reinvesting due to any price hikes in the future. However, considering all the problems in Europe and USA, reaching back the 52 week highs anytime soon is unlikely. Therefore, I changed my mind and will transfer the shares by the end of the year.

    Finally, I wish there were more Canadian corporations offering DRIPs and SPPs just like in the USA. Hopefully, if the general public’s interest in dripping increases in the future, more companies will offer these plans to investors.

    • Thanks Elemag, again, kind words from you.

      You’ve brought up a great point about synthetic DRIPping that I follow as well, having some buffer when you transfer your full DRIPs back to the brokerage account. I recall I’m around the same levels you are with BNS, at least $10 to spare should BNS spike in price. Honestly though, I hope BNS nor other bank stocks don’t spike in price. Cheap stocks make my day :)

      I’m with you. Hitting any 52-week highs from this year, likely won’t be touched for another year or so. Again, great time to keep our DRIPs automatic, buy lower every quarter and don’t have to think about it until the business model changes, company earnings tank and/or a dividend cut occurs. DRIPs, I think, really help take the emotions out of direct stock ownership, which is a great thing.

      Cheers!

  4. MOA, I very much enjoyed reading this series on your site and Ninja’s. Just like Elemag said I’d be more than happy to refer anyone asking about DRIPs and SPPs to this post.

    I don’t do DRIPs (but that is a topic for another post), however you’ve done a great job in putting this together!

    • Hey Kanwal,

      Thanks for stopping by and reading the series!

      I would appreicate that reference, whenever you can :)

      BTW – I really enjoyed your newsletter. Will drop you a line on that, really well done!

  5. Be'en says:

    Do you know which discount brokers pass on the discounts offered by the companies that are participating in drips? I read an earlier article which indicated that Questrade does not pass on the discounts with synthetic drips, but have lost the reference.

    Thanks.

    • Hey Be’en, thanks for stopping by.

      My understanding is all the big 5 banks honour DRIP discounts. I know for a fact, TD Waterhouse does.

      I also recall Desjardins does as well, but without calling all of them myself directly, I could not know for sure.

      Some time ago, I recall Questrade did not honour DRIP discounts but I have an email into them to confirm :)

      Will let you know!

    • @Be’en,

      Here is my question to Questrade:

      “Do you honour DRIP (dividend reinvestment plan) discounts offered by some Canadian dividend-paying companies? For example, Fortis, (2% discount), CIBC (2% discount)?”
      Thanks,
      My Own Advisor.

      Answer by Questrade:

      “We offer DRIPS without discount. Please feel free to contact us if you have any additional questions.”

  6. Matt says:

    It’s beginning to make more sense to me now, MOA. Thank you for the articles.
    One question you might be able to help me out with though…
    Does it make sense to begin to synthetically DRIP right off the bat as opposed to the full DRIP method? To me, it seems like it’s best to start the way you did, with DRIPing via the company/TA. And then, when you have a certain amount of shares that’s paying a high enough dividend, to transfer over to a discount broker in a TFSA. But, if you’re starting with thousands of dollars, is it better to just put your money into a TFSA with a discount broker from the get go and just synthetically DRIP?

    • I think if you can synthetically DRIP right off the bat, that’s a good thing. I didn’t start my full DRIP with TA, I had enough shares years ago to start the synthetic DRIP outright. Right now, it would only cost you about $800 to start a DRIP with TA. Very cheap. However, a dividend cut is coming for sure. This sucks for me, but some investors had warned me about this and I get sell anything. We’ll see what I do. I predict a 50% dividend cut before the end of 2012.

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