# DRIPs when dividend is less than stock price?



## kork (Jun 9, 2012)

To get my feet wet in Dividend paying stocks, I purchased 50 shares of BCE in July of 2015. Low and behold, I received a dividend of $32.50 on October 15th (exciting!). I also checked the box to DRIP the dividend when purchasing through my TD Waterhouse self directed account.

2 questions.

1) Obviously, the $32.50 can't purchase another share. So what happens? Does the money sit in the cash portion of my account until I decide to do something with it, or when I receive the next $32.50 dividend, does it now purchase another share with the DRIP and then I have 51 shares?

2) I've read that with DRIPs, you can sometimes obtain shares for lower than the market price? How does this work? Is there a way to know this when purchasing funds?

Googling these question I sometimes am not sure if I'm asking the right questions as I end up in complex posts or descriptions. Thanks for your patience everyone!


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## OnlyMyOpinion (Sep 1, 2013)

Kork,
1) Yes, the dividend will be paid into your TDW account as cash. No, future dividends will not 'accrue' and buy additional shares.
If you are interested in the DRIP, I'd suggest buying enough additional shares that each quarterly dividend will buy an additional share or two.
The common is paying 65 cents per quarter and are currently priced at $57.13, so owning 100 shares would buy you one per quarter with a bit of room for increase in the share price. The left over cash would stay in your account. I mop it up with TDB8150.
2) I don't think BCE offers a discount on additional shares, but their plan would allow the dividend to buy fractional shares. 
See: http://www.bce.ca/investors/dividendinfo/drp. Belonging to these plans is fine if you own a limited number of companies but once you have a larger portfolio of stocks they become more onerous to track because each stock has its own account.
Alternatively there is: https://www.shareowner.com/index.html, but again if your portfolio will hold etf's or other investments then you face having to consolidate and track multiple accounts.
I'm a big fan of DRIP'ing stocks such as BCE - for years and years, then eventually you can turn off the DRIP and live off of the dividend income


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## kork (Jun 9, 2012)

OnlyMyOpinion said:


> Kork,
> 1) Yes, the dividend will be paid into your TDW account as cash. No, future dividends will not 'accrue' and buy additional shares.
> If you are interested in the DRIP, I'd suggest buying enough additional shares that each quarterly dividend will buy an additional share or two.
> The common is paying 65 cents per quarter and are currently priced at $57.13, so owning 100 shares would buy you one per quarter with a bit of room for increase in the share price. The left over cash would stay in your account. I mop it up with TDB8150.


Ah hah! That was going to be my second question. So moving forward, if I purchase enough shares to allow me to DRIP for one share each time the payout is made, then it would be a wise choice. No commissions, etc.



OnlyMyOpinion said:


> 2) I don't think BCE offers a discount on additional shares, but their plan would allow the dividend to buy fractional shares.
> See: http://www.bce.ca/investors/dividendinfo/drp. Belonging to these plans is fine if you own a limited number of companies but once you have a larger portfolio of stocks they become more onerous to track because each stock has its own account.
> Alternatively there is: https://www.shareowner.com/index.html, but again if your portfolio will hold etf's or other investments then you face having to consolidate and track multiple accounts.
> I'm a big fan of DRIP'ing stocks such as BCE - for years and years, then eventually you can turn off the DRIP and live off of the dividend income


I see. So I could set up a Bell specific partial reinvestment plan, but if I do this with too many funds, then it'll become a pain to manage. I'd be better off making sure that I have enough shares to make sure the dividend paid out can purchase a share but without having to much excess.


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## OnlyMyOpinion (Sep 1, 2013)

kork said:


> ...So moving forward, if I purchase enough shares to allow me to DRIP for one share each time the payout is made, then it would be a wise choice. No commissions, etc.


Yes.


> ...So I could set up a Bell specific partial reinvestment plan, but if I do this with too many funds, then it'll become a pain to manage. I'd be better off making sure that I have enough shares to make sure the dividend paid out can purchase a share but without having to much excess.


(with too many different company shares) Yes.


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## gibor365 (Apr 1, 2011)

http://www.dripprimer.ca/canadiandriplist list of stocks that have DRIP discount... practically all big REITs have 3-5% discount on DRIP


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## kork (Jun 9, 2012)

Awesome, thanks for the info. 

Also, what about US paying dividends? I suspect it would work the same way. Purchase enough shares to DRIP at least one share per pay period.

I was looking at Potash a while back but got scared off because it was a little too much too soon for me to figure out. My understanding is that even though it's Canadian, it's a US based stock (?) and pays in USD.

At that point, I'd lose $ through the manipulation of additional handling fees. I used to experience this with Paypal. I'd sell something in USD on Ebay and then their conversation rate was a few points in their favour (on top of fees) to do the exchange.

With that said, I have a USD Cash account set up with TD Web Broker. They set it up automatically when I set up the non-registered account. I'm just not sure what I'd use it for or how to use it?


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## My Own Advisor (Sep 24, 2012)

"Also, what about US paying dividends? I suspect it would work the same way. Purchase enough shares to DRIP at least one share per pay period."

That's what I do Kork. Buy and hold dividend payers, let them DRIP, let the (leftover) cash build up over time and buy new positions or simply invest in the index.

http://www.myownadvisor.ca/drips/

Potash is a Canadian stock that pays dividends in USD. There are a few Canadian companies that do that.


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## gibor365 (Apr 1, 2011)

> Also, what about US paying dividends? I suspect it would work the same way. Purchase enough shares to DRIP at least one share per pay period.


 Yes, it work same way....but note that brokerage usually charge FX fee converting US$ dividends to CAD$ and charge FX fee second time buying US stock (or Canadian that pays dividend in US$). This is why I have my account in CIBC IE, as they are doing those conversions practically on BoC FX rates


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## humble_pie (Jun 7, 2009)

kork said:


> Awesome, thanks for the info.
> 
> Also, what about US paying dividends? I suspect it would work the same way. Purchase enough shares to DRIP at least one share per pay period.
> 
> ...



re canadian-stocks-that-pay-USD-dividends, this is a somewhat complicated issue, albeit one that's been well-explored & well-written-up in both cmf forum & in CC's old blogspot, which he no longer keeps up to date.

the answer to the USD dividend issue is easy: keep those canadian stocks (there are at least 21, most of them household names such as potash, agrium, goldcorp, etc) in a USD account at the broker. Yes you will receive a correct T5 tax slip showing eligible canadian dividend tax credits, although it will be in USD (certain brokers such as Interactive are not able to furnish a correct T5 in this respect.) No you will not be charged US withholding tax at most brokers (again, IB may be one of the exceptions.)

however the answer to DRIPPing a canadian stock that pays USD dividends can be fearsomely complicated for anyone who looks under the hood to see who's charging FX fees on those dividends (which currency) & who's charging FX fees on the resulting DRIPPed stock (which exchange?). The final statement report that an investor sees will *not* show all these conversion steps. Not enough investors are yet asking for this information, so the IIROC isn't requiring that the brokers disclose.

Potash is one i investigated. The trail led to the DRIP transfer agent, a US company located in new jersey. All Potash DRIP transactions are USD transactions. There's a mention over on the now-outdated CC blogspot. As i recall, a new jersey transfer agent supervisor laughed gently & confirmed that, yes indeed, FX fees would be charged on Potash DRIP reinvestments every step of the way ...

not all brokers even offer DRIP investments on USD paying stocks.

i have a couple canadian stocks paying USD dividends. I keep those stocks in USD account. I would not dream of DRIPPing them. Cash USD dividends are fine by me.


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## gibor365 (Apr 1, 2011)

I;m actually DRIPing POT, last ex-div was on Oct 13, noon FX BoC rate was 0.7701, my dividends had FX rate 0.770004437 , practically exactly same rate like BoC...On Nov 3 my DRIP bought POT at $27.60


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## humble_pie (Jun 7, 2009)

gibor said:


> brokerage usually charge FX fee converting US$ dividends to CAD$ and charge FX fee second time buying US stock (or Canadian that pays dividend in US$). This is why I have my account in CIBC IE, as they are doing those conversions practically on BoC FX rates


other parties have always made clear that CIBC exchanges CAD/USD at beneficial spot rates *only* in registered accounts. In non-registered accounts CIBC is said to charge the same harsh FX fees as do all other brokers, ie 1.50-2% for a one-way exchange.





gibor said:


> I;m actually DRIPing POT, last ex-div was on Oct 13, noon FX BoC rate was 0.7701, my dividends had FX rate 0.770004437 , practically exactly same rate like BoC...On Nov 3 my DRIP bought POT at $27.60



samesame if this was a registered account. CIBC is said to offer spot FX rates only in registered accounts. For non-registered ie cash or margin accounts, the standard FX fees charged by all brokers apply, ie 1.50-2% for a one-way currency conversion.

in addition, the forced instant conversion from USD to CAD that CIBC is utilizing for all USD dividends in registered accounts is harmful for investors who wish or intend to accumulate more US dollars. 

investors wishing to grow their registered account USD holdings naturally by saving or reinvesting USD dividends need a dual-currency investment account system, with the US portion capable of holding USD securities & USD cash in separate sub-accounts.

brokers with true dual currency registered account systems include questrade, bmo, roybank & tddi. One hears that IB & virtual brokers are also to be included in this list.


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## gibor365 (Apr 1, 2011)

> in addition, the forced instant conversion from USD to CAD that CIBC is utilizing for all USD dividends in registered accounts is harmful for investors who wish or intend to accumulate more US dollars.


No any harm  you want US$ -> just buy same day US MM at spot rate again ... it's more flexible than just keep everything in US$...
It's also more convenient with new contributions, as i buy US stock at spot rate, in other brokerages , I will be charged juicy FX fee on buying any US stock for a first time


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## Eclectic12 (Oct 20, 2010)

kork said:


> ... So moving forward, if I purchase enough shares to allow me to DRIP for one share each time the payout is made, then it would be a wise choice. No commissions, etc.


Depends on the business prospects of the company in question and the value one places on the automatic re-investing/saving the commission.

The upside is that except for any remainder ... the re-buy happens automatically without paying a commission and possibly as a better price than the market price.

The downside is that the dividends go back into the same business ... which may or may not be the best place for the money at any given time. As well, should the share price rise much faster than the dividends, there may be an extended period where there is not enough $$ to buy a full share so that one has to still decide where to re-deploy the dividends.




kork said:


> So I could set up a Bell specific partial reinvestment plan, but if I do this with too many funds, then it'll become a pain to manage.


There are a couple of bits of extra work ... first one usually has to obtain a single share or more in one's own name. Then register with the transfer agent to participate in the plan. As well, while the full dividend $$$ will typically roll into new full plus partial shares - buying additional shares is typically on a set schedule where one has no control over the price but may have a similar discount to the one the broker has access to.

That's over and above the fact that where one participates in say five plans - likely this means five separate statements being sent to the investor. The brokerage in comparison provides one statement for all the investments held.

Finally, AFAICT - the company plans are only available for taxable accounts (i.e. no registered accounts available).


Cheers


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## My Own Advisor (Sep 24, 2012)

Agreed. 

You can definitely set-up a Full DRIP (for BCE, many other stocks) with their stock transfer agent but there is certainly more work for the investor, including tracking the adjusted cost base.


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