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.
Check out my full series on this page here.
Today’s post will highlight the process I personally used to get starting with DRIPping.
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”
Step #5 – Start company transfer agent paperwork to enroll the stock in DRIP with SPP
Step #6 – Mail your transfer agent forms and letter of direction
Step #7 – Send a cheque as part of your share purchase plan (optional cash purchase), and enjoy!
And there you have it! You’re done!
Yes, that does help. Thanks very much.
I know it’s been a while now since the last post. First, I’d like to thank you for sharing the DRIP and SPP with the TA. To no avail, I had asked my brokerage (one of the big 5 banks) on this and yet they were not able to offer any direction. Yet, Marc Lichtenfeld’s Get Rich with Dividends clearly described the full DRIP as a powerful compounding machine, a feature that some US brokerages offer to US investors. And you also posted a follow-up on your transferring them to the synthetic DRIP to your discount brokerage. You stated that this would allow you to direct the same stock shares to TFSA enjoying no tax. My question is then whether your dividend earnings while your stocks were with the TA were subject to income taxes (they would not offer RRSP to hold your stocks for instance)? Would this tax pullback not offset the gain they made with the fractional portion of the reinvested dividend? You paid tax on both the whole as well as the fractional shares. Were they in TFSA, the dividend was not taxed.
Hope you still have time to read this comment and appreciate if you can just post a few words.
Unfortunately big banks are not very well versed on full DRIPs and SPPs Harry.
When I was using TAs to start building my small stock portfolio of Canadian bank stocks – I did so because I wanted to build my portfolio as quickly as I could (with fractional shares). Once I had enough shares (e.g., of ENB) to DRIP at least one full share, AND, the TFSA was introduced, I starting move my shares with the TA to my own self-directed TFSA.
I did this for two big reasons: 1) I could continue to DRIP my shares (inside TFSA) and 2) I could avoid paying any income taxes on dividends earned (given TFSA = tax free).
To your question, yes, with dividends earned with TA I did have to pay taxes on any income earned. Now that the shares are in the TFSA, no such issue.
Hope that helps?
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.
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.
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!
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)?”
My Own Advisor.
Answer by Questrade:
“We offer DRIPS without discount. Please feel free to contact us if you have any additional questions.”
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!
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!
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.
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!
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?
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?
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!