The Prudent Investor

Letting Dividends Do Their Work

Most Recent Articles

Dividend Investing Strategies – High Dividend Stocks
The high dividend stock strategy is like many other strategies in that it appears to be straightforward but contains some hidden risks. If one is to adopt this strategy, then it must be selected with an understanding and a plan. Otherwise, it just becomes just another shiny object one reaches for but never seems to catch. This article offers an understanding of the inherent problems with the strategy and seeks to find ways to overcome them.
Future Dividend Champions – Enbridge
If you are from Canada then you are familiar with this large company. If you are not from Canada then you will become familiar with seeing it in the list of Dividend Champions. Simply looking at this company’s numbers can be deceiving as to whether or not it should be included in your portfolio, so we will investigate the aspect of those numbers that normally remove Enbridge’s ability to pass many screens for safe dividend companies.
Alpha and Beta
Risk and reward are intertwined.  Risk is acceptable if paired with an appropriate reward, and understanding how alpha and beta fit into the calculation is essential for the proper determination of risk.
 

Two Ways to DRiP - Part 1

by George L Smyth

There are a couple of good ways to be involved with dividend reinvestment programs, and one bad way.

When I originally started writing about dividend reinvestment programs for The Motley Fool twenty years ago there were three ways to get started with DRiP investing. The first means of doing this involved companies like BuyAndHold, which ended operations in 2015 and moved their clients to a folio investing solution.

I will not be covering folio trading in this series but will explain what it is, using Folio Investing as an example.

Folio trading allows one to create their own portfolio of stocks on the broker's platform. Folio Investing has groups of pre-selected portfolios that one can take as is, or can be modified to accommodate one's preference to weighting. Building a portfolio from scratch of specific stocks is also a possibility.

This does come at a cost. Folio Investing's least expensive plan sets one back $15 per quarter, plus $4 per purchase. The basic plan allows only three trades during the quarter, which is a problem for those whose strategy is to make multiple purchases each month. This limitation can be accommodated on their platform, but doing so moves one to the more expensive plan, which rockets the cost to $29 per month (or $290 per year).

As one who seeks to minimize costs (which is one of the real powers with dividend reinvestment plans), this just does not work for me.

The first way to DRiP that does make sense is to work through a broker, not something that would have been feasible years ago. This does not fit into the traditional mold of dividend reinvestment programs but achieves its goal in the same manner. For this example I will look at TD Ameritrade.

The TD Ameritrade website indicates that they offer everything the DRiPper seeks to accomplish. Their platform advertises fee-free purchases of stock, so multiple purchases of companies could be done each month. The company also offers a dividend reinvestment program without cost, so that barrier is reached. And finally, partial shares can be owned.

There may be limitations on these offerings that do not work. For instance, when making a purchase one needs to specify the number of shares as opposed to the purchase amount. This means that you cannot purchase fractional shares. If you wish to invest $100 and the share price is $51 then the $49 will need to wait for another day. That said, for the advantages TD Ameritrade offers, this is probably going to be an acceptable limitation.

At the time of this writing (10 Dec 2019) there could be a small catch. TD Ameritrade is going to be acquired by Charles Schwab. Although I could not find information anywhere on Charles Schwab's website, I spoke with a representative who told me that they do have an option to reinvest dividends and hold fractional shares, so this may not be an issue.

I have had experience with this in the past. I originally purchased stocks through a company (long forgotten) that was acquired by Zecco, which was then acquired by Ally. The reasons for selecting a company to do business with may not be transferred to the new company, so one simply needs to be aware of the situation and be ready to reevaluate their decision.

The second part of this article will deal with the more traditional means of participating in dividend reinvestment programs.

 



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