DRIP (Dividend Reinvestment Plan) "for dummies"

Came across a step-by-step primer for DRIPs...so in the interests of those who may not be aware:

http://www.dripprimer.ca/

I'm adding it to my list of "thou shalt read the following..." for financial neophytes. :lol:

I refer to that many times to check on any new companies that have started DRIPS/SPP. They are also are requesting that we message Tim Horton's and request that they drop their fees. So if you would to own a share of Tim Horton's or give it as a gift, message them telling them to drop the fees.

If anyone of you would like to start a DRIP for yourself or your kids, check out the google groups located in Toronto. They usually offer shares to people and meet up once a month.
check them out in the google groups, Toronto DRP Club
http://groups.google.ca/group/toronto-drp-club?hl=en

Great comprehensive guide.

A lot of brokers such as Questrade have dividend repurchase plans as well (no commission charged). They're not as good as traditional DRIPs run by the company's custodial bank (can't get fractions of shares), however, you can still keep your shares in street name saving you the fees associated with registering your shares.

DRIP has its own problems, Look at Manulife (MFC - once it was a darling of investors) stockholders, & dividend reinvestment approach. The company is reporting massive losses, & near future looks very murky.
Rather use the same DRIP approach, by using a Dividend Fund (for example Canadian Dividend Fund, so you don't add currency risk).
No matter how Good a company is - at some time in future every company is a Sell & move to a better company (this is not practiced by DRIP investors). With a fund, the manager does it for you.

Quote:

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With a fund, the manager does it for you.

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Put $10,000 in the average Canadian Equity Fund (MER 2.1%) for 30 Years.

You end up with $98,000

Investor Profit: $88,000

Looks good.

That is until you discover the Fund Manager/Company's MER cost you:

$77,000

You made $88,000
The Fund made $77,000

They took almost 50% of your profit.

"...the manager does it for you." reads better as "...the fund manager did it to you."

For proof compound $10,000 for 30 years at 10% (long term TSX averagfe return) vs. $10,000 for 30 years at 7.9% (10% - 2.1%).

The above appeared in Heinzl's "Stop Buying Mutual Funds" about 10 years ago. Despite the media releases from Fund Companies they were going to bring MERs down Globefund reported the average MER had risen to 2.45% last year. They're making even more money off you.

Contrast that with the following:

1909 Grace Groner born
1935 as a secretary at ABBOTT Labs Grace buys 3 shares of company stock for $180 and registers them in the Co. DRIP.
2010 Grace dies leaving the account to her community college

Value: $7,00,000
Yearly dividends: $245,000 (approx.)

By owning a DRIP she paid the MER to herself.

Do I expect to do as well as Grace? No, but give me a portfolio of DRIPs + SPPs over a dividend fund anytime and I'll boost my return paying the MERs to myself.

If you want to check out DRIPs for Canadians visit:

http://dripinvesting.org

It's a hobbyist only, non commercial, no SPAM/Junk website using a "pay it forward" system to help people get started for virtually no cost.

PS: Yes, look at Manulife.

As a DRIPper I've used MFC's SPP to take advantage of what has turned out to be a rewarding buying opportunity.

Just because MFC was held in dividend fund didn't mean the fund didn't suffer. The suffering was just hidden in the background noise.

Who ends up with less money?

Investing $10,000 for a year in a fund with 10 equal $1,000 amounts in 10 companies or a portfolio of the 10 same companies held as DRIPs of equal value and 1 company goes bancrupt?

Even after factoring in commissions the DRIP portfolio is ahead. Why? the MER.

The only difference is you don't see the $0 value in the fund as it's hidden in with the other 9 company values.

:)

I've been using DRIPs for a couple years now on some of my investments, and I've been very happy with the results.

DRIPs not only allow you to increase your position in a stock without having to put up more equity, but many DRIPs also allow you to repurchase stock at a discount. This is typically around 3%. Not only do you not incur additional brokerage fees while increasing your positions through DRIPs, you benefit when the price of your DRIP stock increases or decreases: the price increases and you simply have a larger capital gain, the price decreases and now you purchase more of the stock but at a discount, therefore lowering the overall price you've paid for your shares.

You could invest in a mutual fund, but as someone pointed out, the MER's get crazy and quite frankly most mutual funds don't have your best interests in mind. Pick some decent DRIP stocks, sit back and relax among the chaos that is the market...