Getting started with DRIPs and SPPs
There’s do-it-yourself investing and then there’s really do-it-yourself investing. I’d definitely put full dividend reinvestment plans (DRIPs) that include share purchase plans (SPPs) in the latter category.
I have Part 1 on my DRIPs page here.
Here is Part 2 where I answered some reader questions!
Question to My Own Advisor:
How can I get started with full DRIPs?
The first thing you need to know is not all companies offer full dividend reinvestment plans (DRIPs) that include share purchase plans (SPPs), but the ones that do, pay dividends and are arguably some of best companies to own in Canada. Most big Canadian banks (like Bank on Montreal for example) offer a full DRIP with SPP and many of those banks have been paying dividends for over 150 years! Enbridge offers a full DRIP and they’ve got a tremendous history of paying and increasing dividends. Fortis, Emera and BCE offer full DRIPs with SPPs and most of these companies are part of our pension plans as well as core holdings in many Canadian equity mutual funds. Even Tim Hortons now offers a DRIP! Who doesn’t love Tims? I’ll provide you with some resources later on, so you know what companies offer full DRIPs with SPPs.
To get started in direct stock ownership with company transfer agents, you have a few options…
Option 1 – Know somebody or find somebody.
One way to get your first share is to ask someone you know who has a full DRIP with SPP on the go, with the company you want, and request them to transfer a company share to you. This can be done at no charge to the current shareholder but you’ll need to pay that investor for your share. Usually a small gratuity or courtesy fee (about $10 or so) also goes on top of the stock value for their efforts in helping you out.
If you don’t know anyone, then you can try something called a Share Exchange Board. There are folks who are shareholders with full DRIPs and SPPs running, who are often willing to sell one of their shares. The same gratuity (usually $10 or so) will apply if these investors are willing to transfer a company share to you.
Here are a few popular Share Exchange Boards:
The DRIP Investing Resource Center (and getting that first share). This Board is excellent.
Alternatively, and one of the best solutions, is to find a DRIP Club in your area. Don’t know where to find them? Well, instead of “Googling it” Jon who runs an outstanding site dedicated to DRIPping called Canadian DRIP Primer has already done some work for you. Actually, lots of work for you.
When you find your DRIP club, you can ask someone in the Club if they would be willing to transfer one of their company shares to you. You would need to pay them the share value and small gratuity for the effort (again, about $10 or so). It’s probably best to execute this option in person, since some minor paperwork is required for you to complete, to take ownership of the share. Don’t worry, it’s not like completing your taxes! The paperwork is quite painless and the seller of the share will know what to do, they’ll bring you your share and something called a Securities Transfer Form.
Any of these tactics above are an option, and they are an excellent way for someone who doesn’t have an online discount brokerage account, to get started with full DRIPs and SPPs. Why? Your discount broker will likely charge you fees if you don’t have enough assets in this account.
Option 2 – Pooled purchase/group buy.
Another way to get your first share is to be part of a pooled purchase or group buy. This is where one individual (who is usually an existing shareholder) buys a block of shares in a full DRIP eligible company and then has the transfer agent distribute shares into new accounts for everyone else in the group. I’ve heard of small groups of people doing this, groups of 10 or so in Ottawa where I live but I’ve heard of larger groups doing this.
Option 3 – Do-it-yourself via initial stock purchase in your own discount brokerage account.
I’m not against option 1 or 2 above but I started my own foray into DRIPping a few years ago with this option, using my own discount brokerage account. I felt it was safer (rightly or wrongly) because I was in control of all the transactions but more importantly I already had a discount brokerage account I could use.
I followed option 3.
You can learn more about my comprehensive process in getting started with DRIPs and SPPs in Canadian dividend paying stocks here.
Great series mark! I’ve included it in my round up tomorrow 🙂
Awesome and thanks so much Y&T! I appreciate this support from the lovely West Coast!
I’ve been real DRIP’n for 15 yrs. Before ETF’s. Started with a bank, then another, gradually added TRP, CP, FTS, RIO-UN. Made $ on the split up of CP, but it was messy: bits of this ‘n that. Held on to Cenovus & ECA. Continuing to DRIP but also synth. in my brk acct. The good: mindless constant purchases (& fractions) regardless of market, if discount & SPP offered,great! The bad: company split ups can leave a mess, selling is also difficult as share certs & plus leftover $ are mailed to you 4U to send to your bk acct. “Rebalancing” a portfolio is non-existant-thats a real downer. Eventually all will be trfed to brk acct. Think of DRIP’n as a time machine, choose wisely the company that will be there in the future & continue to make profit & pay & increase divi’s- don’t buy sexy or only on yield, throw in what discretionary $ u can afford (think of it as buying an expensive lottery ticket for the very distant future, but with much better odds-that way u don’t get emotional), set it & forget it.
Oh, yes..1 other thing. Tax. Realize u won’t be getting cash in hand to offset any tax payable (assuming ur outside an RRSP), you’ll only get shares. So keep a cash buffer for the taxman if u need it.
Great to hear!
I will eventually own ECA. Maybe next year.
You’re right, the downside of some DRIP programs are: if a company splits up, it can be messy. Much easier to manage this, or stock-splits, in a synthetic DRIP with the discount broker.
“Rebalancing” is not really the reason why you’re DRIPping, you’re DRIPping to be a long-term owner in a real and profitable business.
I think of DRIPping as delayed gratification, akin to your “time machine”. You’re not DRIPping for gratification now, you’re doing this so in another 20-30 years, you have wealth and likely, lots of it.
Thanks for your great comments and I hope you take more time to stop by the blog!
MOA Great post and series! I’m glad you wrote it, this series is an excellent resource for those wanting to learn how to use DRIPs and SPPs 🙂
Thanks Ninja. As always, I appreciate the support and really enjoy this collaboration!