“This approach is intended for average people who do not have much money to invest, who cannot afford a thousand dollars or more to invest at one time, the same people who never thought of investing in stocks, or have put most of their money into costly big bank mutual funds or GICs.” – Cannew, My Own Advisor reader and fan
The Average Persons Retirement Investment Plan is an easy to understand, simple way to invest. It allows for small investments over time and does not require extensive market forecasting or analysis. You will also see your income grow over time without commissions or fees.
Thanks to Mark for time on his site, here is my two-part series of an approach I’ve used – to get wealthy eventually – a plan that has helped me earn close to $100,000 per year in retirement income. Let’s find out how this plan helped me.
Full Dividend Reinvestment Plans (DRIPs) 101
- Begin to save money. I can’t make you save but I can help you get the most from your savings, with a little effort. So, find ways to reduce your expenses or grow your current income, or both. Cut back on buying snacks, eating out, lottery tickets, magazines, etc.
- Find ways to save $25, $50, $100 or more per month. Have your employer deduct money from your paycheque and deposit it into your savings account; just a suggestion. Think of the money you save today as a Retirement Time Capsule, where you can add money but you cannot take it out ‘till you retire.
- The money in the Retirement Time Capsule will be used to buy stocks, not just any stocks but stocks that will pay you income and hopefully the amount they pay will grow over time. You won’t take or spend the money the companies pay, but you’ll use the funds to buy more shares. If you add extra money to the Capsule, you will buy more shares and the income you receive will be higher than before.
- There will be no fees or commissions to buy shares or to reinvest the income.
- You will not have to hire a financial advisor, follow the stock market, watch financial news, worry about buying and selling or be concerned about the value of your stock, although you can do all these things if you really, really want to.
Starting your Retirement Time Capsule with Stock Transfer Agents
- With $300 to $500 saved you open an investment account with any broker (most banks have discount brokerage arms).
- Select one (1) of the seven companies that I will list in Part 2 of this series. Buy at least one share of each company or buy one company share at a time. The shares will vary in price from $25 to $85 per share per stock.
- Leave sufficient funds for an initial commission of $25 (to buy the share) and request for a share certificate fee of $50, total expected around $75 before taxes.
- Once the share(s) are bought, and with the share certificate in hand (or use a Direct Registration Service), have the stock transferred to the Stock Transfer Agent for the company/share owned. This will be either CST Trust Company or Computershare.
- Register with these Stock Transfer Agents to start your full dividend reinvestment plan with. When you register you can buy more shares send by sending a cheque with your DRIP application form. The Transfer Agent will activate the DRIP account and you will begin to receive dividend payments each quarter.
- When dividends are paid, your dividends will be used to buy more shares (if only a fraction of a share). With Computershare, (not CST) you could even set up a Direct Debit to have fixed amounts taken from your bank each month.
From this point forward your Retirement Time Capsule is fully operational. Every three months you will receive a dividend statement from your Stock Transfer Agent regarding your Dividend Reinvestment Plan. I suggest you make an effort to add new money to your Retirement Time Capsule every month. This will accelerate the dividends that are paid every quarter, dividends that buy more shares (even fractional shares) for you commission free.
Initially your Retirement Time Capsule will take time to get off the ground (meaning your dividends won’t seem to grow that fast) but the more you save and the longer you hold the shares, the faster they will grow.
Cannew is an avid reader of My Own Advisor, a fan of dividend reinvestment plans and a financially-free retiree doing whatever his heart pleases.
What’s your take on full dividend reinvestment plans?
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
ComputerShare has quite a large number of companies that allow you to make your initial purchase directly from computer share.
That’s right Floyd, this way you can avoid the share certificate. I recall Fortis is one with a direct share stock purchase plan.
@Mark: I called Computershare about getting Fortis shares directly (wanted some for Grand daughter) and was told that One Share of Fortis is needed to enroll in a DRIP. There may be some, but none of the ones offering SPP’s can be purchased directly.
There are a few companies that only require one share to start the DRIP. I recall BMO and BNS are others. Correct, few Canadian companies offer direct SPPs/DRIPs – you have to use transfer agents.
Nice approach Cannew. May I ask how long have you been doing DRIPS to receive that amount per year?
Chris:
I switched to Dividend Growth investing in 2006, mainly because I found an article by The Connolly Report. At that time I started my drip’s and slowly got rid of all my other holdings (to transfer to DG stocks). I hold no mutuals, preferred stocks, gic’s or etf’s, and only 2 US stocks.
Chris:
We do have 2 RRIF’s, 2 TFSA, a Non-registered, (Tawcan: all with ShareOwners) and DRIPs. In all those accounts we only have 19 stocks. I re-invest probably 70% to 80% of our dividends which keeps our portfolio growing, as I’m basically 100% invested.
Thanks Cannew. Looking forward to Part 2.
If I was a pessimist, I’d say they just recommended stock picking to people who can ill afford to lose any savings.
Nothing wrong with your comments Glenn, I can appreciate stock picking/selection is not for everyone but in Part 2 I believe Cannew will not just be picking any random stocks for his portfolio.
Me: If folks are at all worried about selecting individual stocks, they should consider a) seek professional advice and/or b) index invest using low-cost products, and those are the starters.
From everything I’ve read, ‘not just be picking any random stocks’ will return equivalent returns to ‘just picking any random stocks’. Or maybe worse.
This type of thing is insidious, even when done with best of intentions. There’s always some new model that has what appear to be rational reasons why it’s a different model – but stock picking is stock picking no matter what the rationale is. And advising stock picking for people who don’t have much money to invest – and therefore don’t have the financial wherewithal to sustain substantial losses – is a bad idea.
I see where you are coming from and yes, there are strong arguments against any stock selection whatsoever. I’m in the camp where I believe dividends, as part of total return, are a good thing for investors and I’m personally fond of companies that have a history of a) paying them and b) increasing them over time.
Are dividend paying stocks magic? No. Are there risks? Absolutely. Those will be highlighted in Part 2.
Cannew’s article is to provide insight into why this approach might interest people as are some other posts on my site on other subjects. Ultimately everyone is responsible for their own financial decisions, from mortgages, to stocks, to insurance, to taxation and other matters – it doesn’t mean any one article is gospel. I hope that clarifies?
Again, for folks unsure of their financial plan, talk to a trusted financial professional – I will always stand behind that 😉
Perhaps should be mentioned:
To avoid the $75 in fees for buying the first share, you could also use an exchange. A good one is dripinvesting.org, where the folks will charge you only a $10 fee. That being said, it (obviously) comes with many risks not associated with using an actual broker. Also, the “fee” is considered a gift, so cannot be used as an investing expense. Another idea is to do a little research in your area about investment clubs, drip groups, etc. I’ve found that anyone who’s into dividend investing is more than happy to talk about it and help others get started.
Also, and I assume this will be touched on in part 2, is that the transfer agents do not offer registered accounts – so now your entire portfolio is taxable. Perhaps cannew can offer their opinion on my strategy around this – I invest monthly with Computershare in a single stock until such a time when the dividend is enough to buy an entire stock, then transfer (not sell and repurchase) all the stocks to a broker and allow it to drip there in a registered account, leaving 1 stock with the transfer agent and doing it again. (Then off-set the capital gains with a charity donation).
Good point Tom. Dripinvesting.org is a great site and you’re right, share exchanges do come with risks. I preferred not to use this route when I was starting out.
Cannew does touch on this in part 2 where you’re investing in a taxable account. This is another (small) risk. He also touches on an approach about enough holdings to DRIP one share (and what to do) so stay tuned!
I know when I have enough shares to DRIP one share I transferred those assets to my non-registered account.
I didn’t know about the donation to charity back then but I do now.
Great comments Tom.
Tom:
You are 100% correct. The DRIP Resource is where I bought my first share when I wanted to start Dripping and when I started our grand kids Drips. They are a great group and are there because they want to Help others (with no personal gain). I know of no-one who got stiffed from them.
Originally this point was part of the article, but Mark has limited space available so this article was cut but the essence of the strategy is covered.
Special thanks to Mark for allowing me to present my ideas!
Another great way to start full DRIP is to use ShareOwner. You wouldn’t need to deal with requesting the share certificate and still can enroll in full DRIP. This is what we’ve done with our son’s dividend portfolio.
That’s true. I’ve heard that. Nothing wrong with ShareOwner, just not entirely fluent with their step-by-step process.
ShareOwner is mentioned in Part 2, but they still charge fees and we are referring to individuals who may only have $30, $50 or $100 per month to invest.
Cannew are the $25 commission + $50 certificate request fees a one time only for the whole portfolio or do I pay this for each individual company that I purchase a share from?
I know it is hard to dumb down these steps enough for 1st time investors like me but I need every step explained because you start off saying there would be no fees or commissions then you refer to the 25+50 $. I want to get started but no one has shown me in detail how to start. I trust that you can explain this better for me.
Thanks.
Lawrence E.
Depending which broker you buy shares from will depend on the cost per share. Most Brokers will charge $25 per trade (per stock). The cheapest method is as Tom suggested, by going to the DRIP Resource Centre. Find a stock you wish to buy and reply to the post. Then you will communicate with the seller and arrange to buy the stock and pay the price of one share plus $10. It may take a week or two to get the Share Certificate, which you will then mail to the Transfer Agent with the DRIP Application.
If you signed up with ShareOwner Investment Inc, they have a Co-Op buying where you pay $10 per trade (to buy one stock). To lower you cost you should buy at least 8-10 shares and that would work out as cheap as the DRIP Resource to buy one share. Once the share is bought Shareowner will transfer whole shares to CST or Computershare by DRS for $50 (electronically, so you don’t need a Certificate).
Wait for part 2 for more info.
Didn’t mean to mislead you. There is the initial cost to the first share(s) and get them to the Transfer Agent. From that point there will be cost to buy additional shares from the Agent or reinvest the dividends. That’s a big issue for those who can only invest small amounts.
If you can only manage $25 or $50 a month, even a $10 fee would be 40% or 20% of your investment. If and when one can afford $2,000 or more per trade than the $10 fee would be 1/2 of 1%. I’ve always tried to keep commissions to 0.25% (1/4 of 1%) or less.
missed the word “No” cost to buy additional shares.