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.
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.