This post is from a fan of My Own Advisor and avid dividend investor Tawcan.
I started investing in stocks in my mid 20’s. Back then I didn’t know much about dividend growth investing so I didn’t pay much attention to stocks that pay dividends. Stock capital gain was on my mind whenever I pulled a buy trigger. While a few stocks I owned paid dividends, I simply viewed dividends as nothing more than extra money. It wasn’t until I read The Lazy Investor by Derek Foster that I started paying more attention to dividend growth investing. One of the key things I’ve learned over the years is that one should start investing as early as possible to take advantage of the power of compound interest.
Did you know that if you start with $20,000 and compound it quarterly for 40 years at 5% annual interest rate, you’ll end up with almost $146,000? That’s without adding any new cash. That’s a pretty significant growth if you ask me!
When Mrs. T was pregnant with Baby T1.0, we discussed the idea of creating an investment portfolio for him. While we will be contributing to his RESP for his post-secondary education fund, we wanted to do something more than that. We wanted to create a legacy by establishing a dividend portfolio for him. The idea of giving Baby T1.0 a dividend portfolio is to provide him with more opportunities in the future. We believe that having a passive income will open a lot of opportunities when he becomes an adult. We plan to get him involved in our household finance and have him involved when it comes to managing his portfolio so he can learn about personal finance and investing. This should allow him to become responsible with money.
We planned to contribute a small amount of money to this investment account, buy some dividend paying stocks, and collect dividends. However, simply collecting dividends and wait until there’s enough money to buy more stocks may not be a good strategy. To us, it only makes sense to buy when the trading fee is less than 1% of the transaction cost. With a small portfolio, it may take years to collect enough money to do one transaction. This is where the dividend reinvestment plan (DRIP) comes in.
As a dividend growth investor, I think the best and easiest way to harvest the power of compound interest is to enroll in dividend reinvestment plan (DRIP). (Mark has also written about this on his site.) Dividends received will be used to purchase more stock shares. When it comes to a DRIP, there are two different types: with a traditional DRIP, or full DRIP, fractional shares can be purchased. So all the dividends received can be fully re-invested. In synthetic DRIP, typically offered by discount brokers, only full shares can be purchased. So you must ensure each dividend payment amount is equal or higher than the stock price.
Enrolling in full DRIP will typically require you to purchase one share of the stock and order a share certificate from the broker. Next, you need to contact the transfer agent for the respective stock to enroll in DRIP. It’s pretty straight forward but requires a bit of groundwork to set everything up. Furthermore, you may end up with different transfer agents so there may not be one centralized spot to check your portfolio. This is when we discovered ShareOwner.
ShareOwner was created in 1987 and is a unique broker in Canada that enables you to create and order an entire portfolio and provides automatic dividend reinvestment for all eligible stocks and Exchnage-Traded Funds (ETF’s) (over 400 Canadian and US stocks and more than 50 ETF’s). Once your ShareOwner account is set up, you can order as many stocks as you want in a single order with a flat commission fee of $40. I really like this fee structure because this is a great alternative to discount brokers. We ordered 15 dividend stocks for Baby T1.0’s portfolio, essentially $2.67 per trade.
To get started, you open an account on ShareOwner’s website, select which account you want to create, and fill out the paperwork. When we created Baby T1.0’s portfolio, we needed to mail in some paper before we could establish an account. The process, however, is very straight forward and only took a week before we received the account login information.
We’ve been using ShareOwner for about 2 years now and here are some key advantages that ShareOwner offers over other discount brokers like Questrade and TD.
- Full DRIPs on over 400 Canadian and US stocks and more than 50 ETFs.
- Order a specific dollar amount of each security. This is a really cool feature as you can specify how much money to buy per stock rather than full share amount. This allows you to utilize all the money in the account.
- Flat commission fee of $40. We only made 1 trades to set up Baby T1.0’s portfolio. Since then, everything is on autopilot.
- Automatic email notification whenever there’s an account update (i.e. dividends, trades).
- You have the option for a scheduled purchase plan so you invest a certain dollar amount per desired time period.
Having said that, there are some minor annoyances I’ve found with ShareOwner:
- Dividends received in US currency are converted to Canadian dollars first. When purchasing more shares, the amount is then converted to US. This mean you may get hit by the currency exchange rate twice.
- The DRIP is on a scheduled slot, so it may take up to a month before dividends are re-invested.
After evaluating the advantages and annoyances, I think ShareOwner offers a great service for dividend growth investors with a very long-term view. Although ShareOwner is not very well known, it’s a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund, so your investments are protected, just like with other discount brokers.
Overall we’re very happy with ShareOwner. We picked 8 US dividend paying stocks and 7 Canadian dividend paying stocks for Baby T1.0’s portfolio. One of the lessons learned is that maybe we should have picked more Canadian stocks to avoid the constant currency conversion. However, US companies like Johnson & Johnson and Procter & Gamble do offer better international exposure than a Canadian company like Fortis. Giving the desired sector exposure, I think the international exposure outweighs the currency conversion annoyance.
If you’re looking to start a dividend investment account leveraging the benefits of a full DRIP, I’d highly recommend taking a look at ShareOwner.