Dividend Digger

Compound interest is the eighth wonder of the world. He who understands it, earns it . He who doesn't, pays it.

Using your Self-Directed brokerage to utilize the DRIP

Often referred to as a Synthetic DRIP , it is one of my favorite strategies for making my money work for me. One thing that separates the synthetic DRIP from the traditional DRIPs are most self directed/discount brokers I have dealt with can only provide a synthetic DRIP because they do not offer to buy fractional shares.

So what is a DRIP?

DRIP stands for:

Dividend

Re-

Investment

Plan

Basically, once you enroll in this plan, all the dividends you incur on your investments get reinvested back into the same company that paid it out. In theory by doing that you are increasing your dividend income every quarter/month when your shares pay out a dividend. So, at this point you have 2 things going for you:

  1. Increased equity in initial investment
  2. Increased investment income

Not too bad hey? Well it gets even better. Imagine having a portfolio that produced $40,000 in dividend income from a company like CN Rail, that company has a stellar 20 year YOY divided growth rate of 17% .  Now imagine stacking that with a DRIP, let alone the actual appreciation of the company. I hear plenty of stories from my friends who work for CN rail about guys who just worked there for the last 30 years and did the company stock reinvestment program and are millionaires from that alone. Not all companies have a dividend growth rate that impressive, but there are dividend companies out there that have consistent dividend growth for many years straight and continue to increase them.  The point is, pick good dividend growth companies, and you’ll have even more momentum with growing your investment income, on top of the already occurring compounding interest. So now we have 3 things going on here:

  1. Increased Equity in initial investment
  2. Increased investment income by compound interest
  3. Increased investment income by dividend hikes

So far, we are doing good but there are even more benefits to this strategy. It is very important to choose the right discount brokerage for your investing needs. If you like dividend stocks but don’t care for the DRIP, then you probably don’t need to worry about this. But for those who want to use a DRIP, it is important know whether your discount broker honors the DRIP discounts. Not all brokers honor this plan, and some won’t tell you unless you ask.  The DRIP discount doesn’t get enough attention, because it does contribute to greater returns for long term investors. DRIP discounts allow you to re-purchase more of the same equity but at a discounted price. Often the discounts range from 1-%10%, regardless any discount is a good discount. Okay so now we are at 4 things working in our favor for wealth accumulation.

  1. Increased Equity in initial investment
  2. Increased investment income by compound interest
  3. Increased investment income by dividend hikes
  4. DRIP discounts

Tired of winning yet? I’m not so I have one more benefit to add to the list. With DRIPs you no longer need to pay brokerage fee, because every time your dividends gets reinvest it comes at no cost to you, saving you more money you can put to work.

So here are several ways to look at how Dividend Growth Companies and DRIPs, go like peanut butter and jelly

  1.  Increased Equity in initial investment
  2.  Increased investment income by compound interest
  3.  Increased investment income by dividend hikes
  4.  DRIP discounts
  5.  No broker fees

 

2 Comments

  1. Ace,

    My main brokerage is Questrade. They do not honor the discount and only have synthetic drip. I have drip turned on for D.UN in both accounts, CUF.UN, and ERF.

    I also have ENB and BNS directly with the transfer agents. ENB still has there 2% discount and BNS discontinued their discount 2 to 3 years ago. I already had BNS directly with the transfer agent prior to their discontinuing their discount of 2%, so I just kept dripping at you can not go wrong with a Canadian bank. I am happy to take the discount when its available.

    • Ace

      February 25, 2017 at 3:17 pm

      IP,
      I had no idea Questrade , doesn’t honor the DRIP discount, glad to here you found a way around it though going the traditional route. Hopefully getting that set up wasn’t to complicated or time consuming. I was thinking about that route when I first starting, but the whole process turned me off. My first brokerage account I opened was through BMO Investorline, i think i had it for only about 3 months before I switched to CIBC investor edge, simply because Investor Line didn’t honor the DRIP discount.

      Glad to be fellow share holders with you!

      Cheers!

Leave a Reply

Your email address will not be published.

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Current ye@r *

© 2017 Dividend Digger

Theme by Anders NorenUp ↑