# Lots of DRIP questions!



## Kaitlyn (May 13, 2011)

I've been DRIPing my eFunds since day 1 but have never DRIPed stocks. Now I'm starting to wonder why not, and maybe I should enable it...

So I've got a bunch of questions I'm hoping you guys might be able to help me with... 
1) There are no fees for purchasing the shares, correct?
2) If the company offers a discount for DRIPs, do I get to purchase them at that discount through TD's "synthetic DRIP"?
3) Does TD's interface update the cost basis correctly based on the DRIP? I know I will/should track it myself separately, but just wanted to know about their interface
4) Am I missing something - is there any reason I would NOT DRIP every single stock I own that pays a dividend?
5) Is it still the case that it's not ideal to DRIP $US stocks because of the double exchange fee hit?
6) Anything else I should be aware of...?

P.S. I'm with TD Direct Investing/Waterhouse

Many thanks


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## gibor365 (Apr 1, 2011)

1. Yes, no fees
2. You should, I was getting this discount when I was in TDW, now getting it in CIBC IE
3. don't know and ...don't care
4. Some stocks have very high yield and nobody knows if it's sustainable , ex. EGL.UN or LIQ , even thoug they have nice DRIP discount , some investors prefer to get Cash... 
5. I've heard TDW "fixed" it, but one of the reasons I moved to CIBC, CIBC convert with FX rate almost = BoC Spot rate (registered accounts)


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## Cal (Jun 17, 2009)

1. Yes, no fees on dripped shares.
2. check with the broker first, TDW yes, as a generalization, if your broker doesn't pass on the discount, switch brokers.
3. TDW should track basedon your purchase prices.
4. You may feel that you would rather put the money to use on another stock that may be a better buy at that time for various reasons.
5. Caution on witholding taxes for non registered US equites as well.


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## SkyFall (Jun 19, 2012)

FYI (just sayin') you need to have enough dividend to buy at least one share, they don't do partial thats what they told me when I called.... just saying for people with small portfolio asking....


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## My Own Advisor (Sep 24, 2012)

Most of the questions have been answered above....

1) No fees for synthetic DRIP.
2) The brokerage should honour all DRIP discounts.
3) The ACB should be done by the brokerage automatically.
4) It makes great sense to DRIP when the stock price is low, when high, well, you're buying stock at a high price.
5) I recall TDDI auto-washes US $$ DRIPs. 

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

Happy DRIPping!


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## Oldroe (Sep 18, 2009)

Drips are great.

The problem is selling. You would be lucky to sell your holding in a month. So you will likely miss any upside sale and the misery of watching your stock tank with no hope of selling means. Only drip rock solid stock.

I view any of the drips with a premiums to be suspect. If a company is offering 1.2 shares for the price of 1 I'm nerves.

I also hated the paper work. Some day I'm selling them all.


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## Beaver101 (Nov 14, 2011)

Oldroe said:


> Drips are great.
> 
> *The problem is selling. You would be lucky to sell your holding in a month. *So you will likely miss any upside sale and the misery of watching your stock tank with no hope of selling means. Only drip rock solid stock.
> 
> ...


 ... 

1. Why is selling DRIPped stocks a problem? I'm assuming you meant only 'non-synthetic' DRIPs due to the de-registry of the DRIP with the company which would take time? 
2. Are there companies that offer 1.2 shares for the price of 1 - this is like a 20% discount? Sounds too good to be true. I agree with the suspect/buyers' beware.

Cheers,


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## the-royal-mail (Dec 11, 2009)

Personally, I find the concern with DRIP to be a bit too high. I don't know what the value is of the stocks the OP wants to buy but if you consider a stock like CP, worth about $180, the dividend on that is only around $10 per quarter on the purchase of 100 shares. So you would have to wait almost 20 quarters (about 5 years) to have enough dividend income to drip to then buy one stock. Granted, not all stocks cost $180 and have the same low dividend rate CP does but it just strikes me as being not worth the bother.

In my maxed-out TFSA, I have collected about $21 in dividends over two stocks since January. I do not have a single stock price that low, that I could drip with. My point here is you need to check the math on a per-stock basis to see if it's worth the bother.

Lastly, it will make your calcs of returns and incomes on a per stock basis a little more complicated, because if you go from 100 shares to 101, your records need to be updated such as in the case of taxable income or capital gains.

I don't bother with DRIP on anything I own.


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## Eclectic12 (Oct 20, 2010)

Most of the rest has been answered so I will stick with point #4 - Am I missing something - is there any reason I would NOT DRIP every single stock I own that pays a dividend?

There are many reasons .... which each investor has to evaluate.

The most common reason I have read that is given for not participating DRiP is that the investor wants to re-invest the cash into a stock at the price of their choosing. The DRiP is automatic, with no control over the price. The trade off is that this requires work to find another stock, have enough cash to buy a reasonable number of shares/unit and to have the time to make the trade.

Another reason is where the investor feels they have enough of that stock/sector and does not want to automatically add more.


You don't mention whether you are talking about a taxable account so I will mention that some investors don't like the bookkeeping that the DRiP adds as each DRiP is the same as buying more stock. The adjusted cost base (ACB) has to be re-calculated from the number bought & the unknown price paid that has to be found from the broker monthly statement. Yes, the broker should update the ACB correctly but if the investor does not at least spotcheck, if not do the full calculations, only large errors have any chance of being noticed [ this may work in favour or against the investor ].

If the investment pays return of capital (RoC), there is the re-calculation of the ACB to reduce the ACB by the RoC amount paid (plus potentially having to manually report capital gains on the yearly tax return) and then the DRiP adds another set of calculations to increase the ACB as well as the number of shares/units owned.

Those who don't like bookkeeping have said they will only consider a DRiP in a registered account where the bookkeeping is optional.


Then too - there are the overall advantages/disadvantages of a broker synthetic DRiP. 

The bad side is that only full shares are bought so that if the share price climbs too much, the dividend times the number of shares will be less than a single share can be bought for. In this case, the dividends stay as cash and the work mentioned above of finding a new investment comes into play.

The good side is that because the shares are held in a brokerage account, if the investment starts to look bad - it can be sold on a moment's notice. In a true DRiP (i.e. offered by the company through a transfer agent), the investor might want to sell based on news but can't for months.



IMO - DRiPs are only worth considering for stable, blue chip type companies, where the investor has enough shares to be reasonably sure there won't be long periods of the dividends being too small to buy one share.


[ Edit: Moved other part to a separate post as this one is longer than I thought it would be. ]


Cheers


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## Eclectic12 (Oct 20, 2010)

Oldroe said:


> Drips are great.
> 
> The problem is selling.
> You would be lucky to sell your holding in a month. So you will likely miss any upside sale and the misery of watching your stock tank with no hope of selling means. Only drip rock solid stock.


The OP is talking about a broker synthetic DRiP so the investor can sell *the full holdings* at anytime the exchange is open (or after-hours trading is happening). So I don't know why there would be any concern about the timing or amount of a sale.

Now if you are talking about a "true" DRiP, offered by a company through a transfer agent - then there is a timing issue as depending on the specific dates, it could be two weeks or it could be almost three months before a sale can be made.




Oldroe said:


> I view any of the drips with a premiums to be suspect.
> If a company is offering 1.2 shares for the price of 1 I'm nerves.


The discount is an incentive to encourage the investor to keep their money in the plan.
I'd be more nervous about the inability to sell at a moment's notice in a true DRiP.

Regardless, what company are you talking about that offers 1.2 shares?

This list of Canadian DRiP plans shows a lot of Canadian companies don't offer a discount.

Of those that do, the range is 2% through 5%. 
If the trading price is $10, then the DRiP share is costing $9.50 instead of $10, which is more like 1.05 shares.

http://www.dripprimer.ca/canadiandriplist




Oldroe said:


> I also hated the paper work. Some day I'm selling them all.


I take it you are talking about a taxable account as a registered account, the bookkeeping is for the investor's info only.

Then too - if you don't like the bookkeeping, why aren't you stopping the DRiP to avoid it?
The longer you leave it running, the more you have to do. 

Note that unless there is RoC being paid ... stopping the DRiP also stops the need for future bookkeeping.

Cheers


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## Toronto.gal (Jan 8, 2010)

the-royal-mail said:


> *1.* if you consider a stock like *CP, worth about $180*, the dividend on that is only around $10 per quarter on the purchase of 100 shares. *So you would have to wait almost 20 quarters (about 5 years) to have enough dividend income to drip *to then buy one stock. Granted, not all stocks cost $180 and have the same low dividend rate CP does but *it just strikes me as being not worth the bother.*
> 
> *2. * I *do not have a single stock price that low*, that I could drip with...
> 
> *3.* if you go from *100 shares to 101, your records need to be updated* such as in the case of taxable income or capital gains.


*1.* LOL TRM, and what if the stock in 5 years = $500? Do you think most investors would still want to buy it after an increase of $320, let alone DRIP it? OTOH, it could be $50. So if CP is not worth the bother at present time, and I agree with that, why bring such a poor example to prove your dislike of DRIPs? Also, you're assuming the stock would have been purchased at today's prices [recall it was in the $40's not so long ago], and 2) its very low yield, as u also noted, does not make this the ideal stock to DRIP anyway. 

*2.* Just because you don't have any low enough stock to DRIP, does not mean that there aren't any/many out there! In 2014, there are still many undervalued stocks btw!

One ideally starts DRIPping while the share price is low, not after it has skyrocketed [260% since 2010 in the case of CP], which is what I have done with many of my stocks, ie: GE/MFC/POT, etc. Since 2009, I have DRIPped a high combined # of shares precisely because I chose to make the cheaper stocks my top holdings! For example, had you purchased 1,000 shares of MFC when it was $10, you would have been able to DRIP a dozen or so shares for a number of quarters. Had you purchased even just 100 sh, you would have been able to DRIP 1 sh for quite a long time also, or 1.3 with a true DRIP [not any more, but at the cheap price back then, an investor would have likely increased his/her position to have been able to DRIP even at today's still low prices; I tripled my position in 3 years, and exactly for that reason {price}]. 

Even with a more expensive stock such as POT, at today's prices, you could DRIP 1 sh with just 120, so it's not like one would need thousands of shares of anything to be able to reinvest/and or have to wait 20 quarters to do so. :biggrin: Another inexpensive stock that I have been DRIPping for years, is GE; I DRIPped 12 shares last quarter, but even someone with about 125 sh, would be able to DRIP 1 at today's prices. Note also that one can stop the DRIP at any time once the stock gets overvalued, or for whatever other reason, so it's not like a DRIP is a lifetime commitment for those who don't favour an automatic set & 4get kind of DRIP.

*3.* You noted the negative, but not the positive, which is the double compounding effect, ie: the higher the share # as a result of reinvesting, the higher the dividend payment, and just one of the advantages of DRIPping, but then, there is also the zero commissions to reinvest said dividends/the DCA benefit, etc.

IMHO, writing off DRIPs simply because of the high prices of certain stocks, or because it doesn't suit x,y,z investor's strategy, means that you're not understanding [in full] the benefits of DRIPping in general, like those mentioned above for example. 

As for the lazy issue, aka accounting headaches, there is none of that if you DRIP within registered accounts, and as Beav & Eclectic mentioned, no difficulties in the least selling synthetic DRIPs. I have true DRIPs as well, but since I'm holding for another 20 years, why would I worry about such a headache now, when by then, it might be as easy to sell those as the synthetic ones, or even become someone else's headache?


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## Toronto.gal (Jan 8, 2010)

Eclectic12 said:


> 1. what company are you talking about that offers 1.2 shares?
> 2. Of those that do, the range is 2% through 5%.


*1.* 20% discount? I'm pretty sure ZERO companies. :very_drunk:
*2.* Yet another DRIP advantage instead of the exaggeration under #1.


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## Eclectic12 (Oct 20, 2010)

the-royal-mail said:


> Personally, I find the concern with DRIP to be a bit too high.


Maybe .... but ignoring a tool in the toolbox is likely to result in regrets, n'est pas?




the-royal-mail said:


> ... Granted, not all stocks cost $180 and have the same low dividend rate CP does but it just strikes me as being not worth the bother.
> 
> In my maxed-out TFSA, ... I do not have a single stock price that low, that I could drip with. My point here is you need to check the math on a per-stock basis to see if it's worth the bother.


I like the point about evaluating per-stock. 
I'd add that just because today, the math doesn't make sense does not mean it won't in the future.

The part I am puzzled at is what relevance is what you've chosen to do in your TFSA?

I can as easily comment that I've got three stocks in the TFSA that have been faithfully adding new shares automatically since 2009/2010 but that is likely just as irrelevant to the OP.




the-royal-mail said:


> ... Lastly, it will make your calcs of returns and incomes on a per stock basis a little more complicated, because if you go from 100 shares to 101, your records need to be updated such as in the case of taxable income or capital gains.
> 
> I don't bother with DRIP on anything I own.


It looks like your bias is showing.

Is having an automatic DRiP any more of a challenge to calculating returns/incomes that much more difficult than when one buys more of the same stock?

If one is using an automated bookkeeping system such as Quicken or GnuCash or a spreadsheet with automatic calculations - is this an issue?


As for the "taxable income & capital gains" - the broker is going to provide a T5 or T3 which includes the totals. 
Is it any more difficult to reconcile the summary document against the T form for 100 shares or 101? 
IMO, it's pretty much the same amount of work.

Now if the investment pays RoC - that complicates things but RoC in a taxable account requires this, DRiP or no DRiP.
Most of the time, the DRiP is only going to add one more calculation to what is already required. 
In rare occasions where the % RoC is high, *without a DRiP* there may be capital gains to manually report on the yearly tax return.
With a DRiP, the increase in ACB is probably going to eliminate the possibility of this.

Cheers


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## gibor365 (Apr 1, 2011)

_Personally, I find the concern with DRIP to be a bit too high. I don't know what the value is of the stocks the OP wants to buy but if you consider a stock like CP, worth about $180, the dividend on that is only around $10 per quarter on the purchase of 100 shares. So you would have to wait almost 20 quarters (about 5 years) to have enough dividend income to drip to then buy one stock_

How come?!  In 5 years you will have same $10 + dividend increases, but even with 20% annual div increase, you will get only $20 Q dividends...How you gonna DRIP?! hence it's not accumulated....


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## Toronto.gal (Jan 8, 2010)

^ TRM acknowledged not having a single DRIP, so the lack of understanding with respect to the synthetic set-up is not surprising.

There are advantages & disadvantages with DRIPs, all of which have been discussed on this forum on several occasions.


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## PuckiTwo (Oct 26, 2011)

Toronto.gal said:


> *1.* LOL TRM, and what if the stock in 5 years = $500? Do you think most investors would still want to buy it after an increase of $320, let alone DRIP it? OTOH, it could be $50. So if CP is not worth the bother at present time, and I agree with that, why bring such a poor example to prove your dislike of DRIPs? Also, you're assuming the stock would have been purchased at today's prices [recall it was in the $40's not so long ago], and 2) its very low yield, as u also noted, does not make this the ideal stock to DRIP anyway.
> 
> *2.* Just because you don't have any low enough stock to DRIP, does not mean that there aren't any/many out there! In 2014, there are still many undervalued stocks btw!
> 
> ...


Great post! Thank you again for all the knowledge you are passing on.


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## Toronto.gal (Jan 8, 2010)

Thanks Pucki2. 

DRIPping is not for everybody, but doing so with established companies that are not overvalued, and offer reasonable & sustainable yields, over the long-term it can make a big enough difference in overall return. Someone here once said, that given the low trading commission these days, that accumulating the dividends & purchasing with or without additional new cash in same or other companies [waiting for better timing for example], gives same or better results than the automatic DRIPs, except that there are more advantages to DRIPping than just zero fees. For those that have true DRIPs, the fees certainly are important, as the no fee Optional Cash Purchases come into play as well, and one could save thousands over the long-term in that scenario.

It comes down to also recognizing opportunity in volatility, ie: dividends have more buying power when shares of good companies that hopefully don't go bankrupt, go down.

Here is yet another article on the subject:

http://www.theglobeandmail.com/glob...rticle18768594/#dashboard/follows/hotmail.com

Edit: In the noted personal example, the writer left the commission out, which he should have included as he did not DRIP automatically, but such a detail did not escape one of the readers.


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## Cal (Jun 17, 2009)

For those that do drip, I am sure that they are very aware of the limitations within a TFSA, as if you want to drip, you need to select a stock that will (or eventually will) allow you to drip, as we are now only allowed to place $5500 into our TFSA. At this point it isn't too bad for most holdings, as we have more contribution room, but it really can depend on how many holdings you have within it.


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## gibor365 (Apr 1, 2011)

Cal said:


> For those that do drip, I am sure that they are very aware of the limitations within a TFSA, as if you want to drip, you need to select a stock that will (or eventually will) allow you to drip, as we are now only allowed to place $5500 into our TFSA. At this point it isn't too bad for most holdings, as we have more contribution room, but it really can depend on how many holdings you have within it.


DOn't understand your post  What is the difference between driping in LIRA or TFSA ? DOesn't matter you DRIP or just buy new shares withinn TFSA , just don't exceed 5500 annual contribution


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## Cal (Jun 17, 2009)

When the TFSA were just starting out, we could only deposit $5000 per year, so it wasn't any use to buy a $180 stock (as mentioned upthread) to drip, you wouldn't be able to buy enough shares to drip 1 share synthetically within the TFSA.

Some purchased shares then that would be able to drip at least 1 full share per quarter (or monthly depending upon the company).

Now that we have more TFSA contribution room, this is less of an issue. But nonetheless something to consider, if it is your intention to drip within your TFSA.


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## Kaitlyn (May 13, 2011)

Hmm so I called in, enabled DRIPs for all securities and today when I look at "Activity" in WebBroker, I see I received a DIV for Shaw Communications. The proceeds are enough to buy 1 unit, so any idea why I don't see a DRIP/BUY entry? Does it not happen instantly?


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## Moneytoo (Mar 26, 2014)

Kaitlyn said:


> Hmm so I called in, enabled DRIPs for all securities and today when I look at "Activity" in WebBroker, I see I received a DIV for Shaw Communications. The proceeds are enough to buy 1 unit, so any idea why I don't see a DRIP/BUY entry? Does it not happen instantly?


When my husband called TD Waterhouse to enable DRIP, they told him that since it has to be enabled before Ex-dividend date, it might take a month before all his securities are dripping. The first one soon after didn't drip, the next one did


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## Eclectic12 (Oct 20, 2010)

Cal said:


> For those that do drip, I am sure that they are very aware of the limitations within a TFSA, as if you want to drip, you need to select a stock that will (or eventually will) allow you to drip, as we are now only allowed to place $5500 into our TFSA.
> 
> At this point it isn't too bad for most holdings, as we have more contribution room, but it really can depend on how many holdings you have within it.


Something to plan for ... but contribution room is not the only source of buying enough to DRIP. Investments that grow can also be sold to provide the funds for purchasing more.


Cheers


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## Spudd (Oct 11, 2011)

Also, I find it sometimes takes 24 hours for the DRIP to show up.


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## the_apprentice (Jan 31, 2013)

I understand the advantages of a DRIP and how it is paid, what I don't understand is the logistics behind a DRIP and how it actually works. If everyone that owns the company is dripping the stock, where do the additional shares come from? Does it devalue all current shares to add new shares?


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## SkyFall (Jun 19, 2012)

the_apprentice said:


> I understand the advantages of a DRIP and how it is paid, what I don't understand is the logistics behind a DRIP and how it actually works. If everyone that owns the company is dripping the stock, where do the additional shares come from? Does it devalue all current shares to add new shares?


usually they don't charge the commission fees, sometimes you get the stock through driping with a little discount......it's a dollar cost averaging with few advantages...... the advantages and the DCA is more important if you have a larger portfolio because you will drip more shares with your dividends


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## Cal (Jun 17, 2009)

It really depends on the company too, dripped shares can be bought on open market, or can be issued from treasury.


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## My Own Advisor (Sep 24, 2012)

Nope. It takes some brokerages a few days for the activation to take effect. Not real-time activation is my understanding. DRIPs, although they can be turned off and on, aren't instantaneous like a tap 

Then, there are market and treasury DRIPs, not all DRIPs are created equal.


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## OurBigFatWallet (Jan 20, 2014)

Here is my attempt to clarify DRIPs. A 3 part series all about DRIPs

http://www.ourbigfatwallet.com/part-1-the-basics-of-drips/


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## Cal (Jun 17, 2009)

Good articles for beginners, hope you don't mind, I posted the link at www.dripinvesting.org, as I figured that may be of assistance to some others on that site as well.


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## gibor365 (Apr 1, 2011)

I don't know why, but DRIPs depends on discount brokerage.... before I hold several same stocks in TDW and CIBC (ex. SU), in CIBC I was getting dividends same day as payment date, in TDW usually 3 weeks later... Now when I transfered my TDW account to CIBC, I get NA dividends same day as payment date, but in TDW I was always getting it 4 weeks after...


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## Cal (Jun 17, 2009)

Generally I find that w TDW the money actually is there, but it takes far longer to show up in my account online, but if I call in-the dividend is in my account, for whatever reason it doesn't show up online as quickly though.


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## Toronto.gal (Jan 8, 2010)

gibor said:


> 1. I don't know why, but DRIPs depends on discount brokerage
> 2. CIBC (ex. SU), in CIBC I was getting dividends same day as payment date, in TDW usually 3 weeks later......


*1.* From what people have written here, this seems to be the case, and not just about dividend payment dates, but even the ability of being able to DRIP certain stocks at all. With CIBC, I have yet to encounter not being able to DRIP a stock of my choice, and that is regardless of whether there is a company DRIP or not, as that should not really affect a synthetic DRIP.

*2.* True as well, except for ADRs, it seems to be a day later. For example, this week, I received dividends for F on payment date/for TEVA one day after payment date.

The payment/process date is not an issue, it's the inability to DRIP that should be more of a concern for those that like to automatically reinvest their dividends.


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