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

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

Previously, 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 did so because I wanted to share my DRIPping experiences with readers because I think this process is an excellent way for small-time investors (like you and 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 after obtaining your first share with just $25 or so.

This means:

• You send your small cheques or set-up pre-authorized payments to the company transfer agents,
• The transfer agents do all the work (they buy all the shares; they reinvest your fractional shares – accelerating your stock ownership), and
• You simply rinse and repeat and get wealthy slowly.

I know, I can say that – 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.

Closing your DRIPs with SPPs

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 the heavy lifting for you. 

Remember: money that makes money, makes more money.

For me, when this happened* (*I owned enough shares to consider running a synthetic DRIP with Fortis, Bank of Montreal, and Sun Life Financial) 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.

Closing step-by-step

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.

When was with Computershare, I used “Part B” on the back of their statement, and selected “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, I indicated termination from the plan and/or request a share certificate for all whole shares and a cheque for any fractional shares.  Make sure you also 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.

Closing thoughts on closing my DRIPs with SPPs

I followed this process to max out my TFSA for 2012, with a dividend-paying stock. 

Once I had enough shares (in a few stocks) to max out my TFSA, I stopped all work/investing with stock transfer agents. I moved all shares/assets from the transfer agents to my discount brokerage account. I stopped using transfer agents about 2013. I haven’t looked back since.

That stock (BMO) 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!