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Letting Dividends Do Their Work

Adventures in DRIPping - Forbes 40

Robert D. Gibb

Recently a series of articles appeared on in which Forbes magazine listed the 40 largest Canadian corporations. Here is the list minus companies that offer a DRIP combined with a stock purchase plan (SPP):

1 Royal Bank of Canada Banking 
2 Manulife Financial Insurance 
4 Toronto-Dominion Bank Banking 
5 EnCana Oil & Gas Operations 
6 Sun Life Financial Services Diversified Financials 
11 Petro-Canada Oil & Gas Operations 
12 Thomson Business Services & Supplies 
13 Power Corp of Canada Diversified Financials 
15 Canadian Natural Resources Oil & Gas Operations 
16 Canadian National Railway Transportation 
17 Shell Canada Oil & Gas Operations 
18 George Weston Food Markets 
20 Magna International Consumer Durables 
21 Husky Energy Oil & Gas Operations 
23 Brookfield Asset Management Diversified Financials 
25 Bombardier Aerospace & Defense 
26 Nortel Networks Technology Hardware & Equipment 
28 Falconbridge Materials 
29 Talisman Energy Oil & Gas Operations 
31 Nexen Oil & Gas Operations 
32 Fairfax Financial Holdings Insurance 
33 Quebecor Business Services & Supplies 
34 Onex Technology Hardware & Equipment 
35 Inco Materials 
36 Rogers Communications Telecommunications Services 
37 Empire Food Markets 
38 Barrick Gold Materials 
39 Teck Cominco Materials 
40 Research In Motion Technology Hardware & Equipment

I decided to contact each of these twenty-nine companies by e-mail and ask why they did not offer a DRIP plus SPP. Four companies could not be contacted.

1. Power Corp - Couldn't find a direct e-mail listing. 
2. George Weston – From previous correspondence it’s already known that a DRIP plus SPP is not offered because they are majority owned. 
3. Bombardier - Internal e-mail system. No address easily seen. 
4. Fairfax - Only lists mail/phone contacts. The website did give detailed directions to drive to head office, however, as I live in Victoria I thought this a bit much.

Of the remaining twenty-five companies only four replied. Here is the e-mail that was sent:

I write a column on Dividend ReInvestment Plans (DRIPs) for Canadian MoneySaver magazine. Recently, Canadians lost one DRIP to a takeover (Terasen) and look about to lose another (Dofasco). Over the last few years we have lost several others, including Alberta Energy, Nortel, Nova, etc. for various reasons (mostly mergers or foreign takeovers). We now have less than 25 Canadian Equity Corporations offering DRIPs with an optional SPP (stock purchase plan). While the number of companies in Canada offering DRIPs + SPPs has fallen about 20% recently in the USA the number has risen over the same period from about 800 to an estimated 1,700 today. Because the number of Canadian companies offering DRIPs + SPPs is so low Canadian investors are now sending dollars to US companies. I, myself, have 7 US DRIPs + SPPs. While CMS is aimed at providing advice in all financial matters the messages posted on the boards of the magazine's website are over 95% about DRIPs + SPPs. The people involved in "DRIPping" want to invest in Canada but do not consider mutual funds as an option. I'm hoping you can take the time to answer a few questions for our readers. There is huge interest among Canadians for this product.

1. Has any thought been given to adding a DRIP + SPP? 
2. Are there particular reasons why a DRIP + SPP is yet to be offered? 
3. What needs to happen to make to make it feasible for you to offer a DRIP + SPP? 
4. Is there anything the average Canadian can do to facilitate an offering?

The four companies (Encana, Shell, Petro Canada and RBC) that did respond gave various reasons for either not offering a DRIP and/or a Stock Purchase Plan including:

  1. While dividend and share purchase plan programs offered a way to increase shareholder value it was preferred to increase value through a Normal Course Issuer bid or share buy back program. It would not make sense to run both programs concurrently. (Encana)
  2. Because the majority of shares were held by the parent company and/or institutional investors there are too few retail investors. Participation rates in a DRIP would be too low to be cost effective. However, if enough investors requested a plan the issue would be revisited. (Shell and Petro Canada)

Apparently RBC only skim reads e-mail as they responded that they already had a DRIP. I contacted them again and said the question was mostly concerned with the offering of a stock purchase plan. RBC replied an SPP was discussed at the board level but rejected. No reasons were given. Well, at least they replied.

Canadian corporations just don’t seem interested in offering DRIPs with SPPs. New American offerings appear at a rate of about one a week while the Canadian corporate DRIP universe is shrinking. Canadian trusts offering DRIPs plus unit purchase plans (UPP) now far out number similar Canadian corporation plans. What is clear is that the more people contact companies about this the more likely they are to take notice.

Season’s Greetings

One company that did not reply was Manulife Financial (TSX:MFC). While they failed to respond to my query in mid December Manulife announced the establishment of DRIP. On contact by phone, investor relations indicated the DRIP will include a stock purchase plan. Plan particulars were to be announced in January 2006 but at the time of writing nothing is known. Manulife recently announced further expansion into China and DRIPs are known to be a low-cost means for corporations to get financing. Is this is the reason for starting their DRIP plus SPP?

Interestingly, while Manulife announced the creation of a plan their Investor Relations FAQs still says a plan is not offered as with so many shareholders it would be too expensive to run. I wonder what changed their minds. Sun Life and Power Corporation please take note.

Other News

Many were angered by the recent rule changes, National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106") that came into effect in all jurisdictions in Canada on September 14, 2005 after the various provincial commissions attempted “to harmonize the offering of securities under prospectus and registration exemptions across the country.” These rule changes severely affected shareholder participation in DRIPs. Most notable was the affect on Telus’s (TSX:T) ability to reinvest voting share dividends and Computershare’s ability to sell plan shares previously permitted.

Thanks to the Internet a harmony of protest occurred when many people made a coordinated effort objecting to the various provincial securities commissions over these rule changes. While the securities commissions were responsible for the rule changes many of the responses I received from the commissions deflected blame to the companies saying the onus was on companies to comply. As for selling plan shares the response was that it was up to the transfer agents to apply to become brokers or to make arrangements to sell through a registered dealer.

Telus announced recently that the issue over reinvesting voting share dividends has been solved. What might have been missed is that Telus announced it had made application to again be allowed to sell shares through the plan. About a month after that Bell plan holders received a letter indicating shares could again be sold through their plan. Hopefully all the difficulties created for plan holders by this harmonization will be solved soon and we can get back to a peaceful state of discord as before.

Now if only something can be done about those never ending anti-terrorism anti-money laundering forms?

A Final Note

Several months ago I noticed Computershare had changed the required minimum OCP amounts on their website:

You might have to change to Canada English or Francais in the upper right to access the Canadian plans. While this page lists all minimum initial investment amounts as $0.00 click on “plan details” to get the OCP or optional cash payment amounts for individual companies. Most dramatic are the drops in minimum OCP amounts for many trusts. While paper prospectuses are indicating much higher minimums people are reporting to me that cheques for smaller amounts are being accepted. However, don’t take my word for it as I have not sent any smaller OCPs. Verify this for yourself.

Robert Gibb, 401-2910 Cook Street, Victoria, BC, V8T 3S7 (250) 383-7075 Robert Gibb is a retired school teacher. He gives seminars on dividend reinvestment plans. Mr. Gibb is a frequent contributor to Internet DRIP boards under the nickname OperaBob.

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