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Drip Investing

Discover how Dividend Reinvestment Plans (DRIPs) can amplify your investment portfolio by automatically reinvesting company dividends into additional shares, leveraging the power of compounding to escalate your shareholdings over time.

DRIP Investing: Getting Started

Starting with DRIP investing is simple. It's about making small, regular investments grow over time, just like how Coca-Cola started. Here, we'll explain the easy steps from your first dividend to picking a DRIP plan that fits you. Let's get those dividends to build up your savings.

One of my distant ancestors is Asa Griggs Candler. That name may mean little to you unless you live in Atlanta, Georgia, where the last name is everywhere. In 1888 Asa purchased the Coca-Cola formula for $2,300. He had a flair for marketing and very quickly built the company to the point where he would sell it about 30 years later for $25,000,000.
Many of us go through a phase where we understand how stocks work, we understand some of the factors that contribute to the increase or decrease of the stock's price, and therefore feel that we can anticipate these changes and start trying to time the market. In the late 1990s we were all geniuses and in the early 2000s we were all idiots.
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.
Dividend Reinvestment Programs (DRiPs) offer numerous advantages to the investor who is seeking to build wealth over a long period of time with a minimum amount of risk. This is done by selecting great companies and then making regular purchases. While others stress about the ups and downs of the market, the DRiPper understands that when the market drops those regular purchases will obtain more shares.
When evaluating stocks there are many metrics that can be used, some have great importance, and others have importance only in specific cases. The dividend investor looks at the yield to understand what their cut of the proceeds will be.
Perhaps by the title you were thinking that I might be cautioning against investing at this particular time. For some that is exactly what I am saying, but it has nothing to do with market prognostication. After all, with proper dividend investing, timing is of little significance, but that is fodder for a different article.
There is no getting around taxes. It hits us each year and each year it is a double whammy - not only does money go away, but there is frustration in simply figuring out how much is to go away. One need to somehow find ways to make an utterly dismal task palatable.
Everyone needs to be able to keep track of their portfolio and there are numerous means available to us for doing so. One direction is to go with something very complete, like Stock Rover, which is a great piece of software that offers an incredible range of information. The downside is that its completeness is accompanied by a rather steep learning curve. The other end of the spectrum is to start with something simple and easy to use, though it may not have the capabilities other means of tracking offer.
Many people own more companies than I do. This is a personal choice, so if that number works for them, then it is the correct number. As a serious photographer who works with historic processes, I have always said that whatever means one chooses to share their vision, if it is successful for them to do so, then that is the correct choice. As noted in a previous article, I feel that this is the same with investing.
National Fuel Gas Company (NYSE: NFG) is a diversified energy company headquartered in Williamsville, New York, operating an integrated collection of natural gas and oil assets across four business segments within three groups:
Each day I receive an email from Google, which has used the key phrase “dividend investing” to select a series of articles for me. It points me to some the articles that are interesting and informative. The majority, however, are articles either examining a specific stock or offering to have already found a group for me to purchase.
Dividend Champions are companies that have increased their dividend every year for the past 25 years. Contenders have increased their dividend for the past 10 years, and Challengers the past five years. The idea for the spreadsheet was created in 2008 by Dave Fish (deceased in 2018), and is now available and updated every Friday afternoon.
Fads dominate financial magazines. A quick survey of current editions will often show recommendations of hot stocks and successful mutual funds to purchase right now. Of course, this year's successful mutual fund manager may not have this success last into the next year.

Dividend Investing Strategies

Learn about Dividend Investing Strategies in a way that's easy to understand. This section will show you how to pick good stocks that pay dividends and make a plan to earn regular income from them. Get ready to grow your money smarter.

Long ago I was given a year and a half lead time to prepare for a photographic exhibit that was to be based on water. For months I would venture from home in search of worthy subjects and make prints with varying darkroom techniques. A year passed and I felt that I did not have more than a small handful of unconnected pieces, certainly not enough worthy to be shown. Although I had had direction, I had not had focus.
I believe that I created the InvestMete strategy in 1998. Looking though the history of purchases in my spreadsheet I can see that I normally sent $50 to my dividend reinvestment program of choice. Then in late 1998 the amounts changed to numbers like $71, $45, $66. This was because of InvestMete, but I need to step back to explain this.
It may be more helpful to use InvestMete using Google Sheets. Fortunately, Google Sheets offers an easy way to get the information that is needed, so you can download my spreadsheet and use it whenever you wish.
The dividend growth strategy relies on the selection of companies that have a history of dividend growth. There is a different strategy where one purchases high dividend yield stocks, and that will be the subject of a future article. However, this strategy concentrates on not simply the maintenance of the dividend, but its growth over time.
When I was five years old I went to the dog pound with my father. I remember selecting one we called Lady (after the movie we had just seen, “Lady and The Tramp”) and she was my best friend for the next 17 years. Why is it that we have so many pejorative phrases for dogs? ‘dirty dog’, ‘gone to the dogs’, ‘sick as a dog’ – I'm just not sure how "dog" can have a negative connotation, but I'm straying.
Investing strategies that are successful get attention (and the ones that are not are derided). Successful strategies get examined to see whether or not improvements can be made. This is certainly the case with the Dogs of the DOW. For your scrutiny I will offer several strategy alterations that have been tested and one untested model that I am thinking may work.
The power of dividend investing is based upon the reduction of risk, which leads to the preservation of capital. By deciding not to chase fantasy returns, one can move forward in a world where others move their feet without going much anywhere.

Future Dividend Champions

Meet the Future Dividend Champions. These companies are on track to becoming top picks for investors who love getting regular dividend payments. In this section, we'll show you why these stocks stand out and how they could help give your investments a boost over time. Start exploring which one might be the champion for your portfolio.

Cardinal Health, Inc. is an integrated healthcare service and products company based in Dublin, Ohio. They specialize in the distribution of pharmaceuticals and medical products and manufacture surgical products and fluid management products. Being around for over 100 years and with 50,000 employees in 46 countries, they are currently #16 in the Fortune 500.
Church & Dwight is a manufacturer of household products that has been around since 1846 when John Dwight and Austin Church began selling sodium bicarbonate (baking soda). Over time they have expanded by purchasing companies and products, like Pepsodent, Arrid, and Orajel. Their portfolio of products is within the fabric care, health and well-being, home care, and personal care categories.
If you have participated in the Dividend Investing for Canadian Investors forum, then you know that Enbridge is a company that has been referenced many times. It is probably the most requested company in the Stock Exchange section, with over 1,700 mentions.
When I think of companies, my mind generally tends toward the large ones. I have filled my portfolio with behemoths like MMM, Aflac, and Johnson & Johnson, market capitalizations respectively of $93, $27, and $390 billion. They are so large that attempting to grasp numbers of that size leads to absurdity. For instance, if one were to stack MMM's market cap in dollar bills, the pile would be over 6,000 miles high. You literally could not live long enough to spend all that money at the rate of $20 per second in a lifetime.
New Jersey Resources provides natural gas and energy services to over half a million customers in parts of New Jersey. It is organized into five reporting segments (the 2019 Annual Report notes four reporting segments, as Home Services comprises such a small portion of the company that at this point it does not significantly impact the financials).
On 28 April 2020 IBM announced that holders of their stock on 8 May would receive a quarterly cash dividend of $1.63 per share. With the payment on 10 June, the company will have increased their dividend for 25 consecutive years. This allows them to join the 140 other Dividend Champions that have accomplished this feat.

Resources for the Dividend Investor

Fill your investor's toolbox with our handpicked list of easy-to-read books. If you're just starting or already know a lot about investing, these books are full of tips and advice to help you make money with dividends. Check out our favorites and learn new ways to improve your investments.

I am embarking on an occasional series that will highlight the best books for dividend investors. I will not pull information from other articles and reprint what they have published, but will write about the books I have read and learned from them, and know will be educational to everyone with an interest in the subject.
The introduction to this series of best books for dividend investors offered a recommendation that was not a book, but a series of Warren Buffett's letters to shareholders within Berkshire Hathaway's annual reports. To follow on that, the first book I am recommending for dividend investors is not a book specifically about dividend investing.
The Ultimate Dividend Playbook: Income, Insight and Independence for Today’s Investor by Josh Peters

Deep Dive into Drip Investing

Dive into the world of dividend reinvestment. Find out how to pick stocks that can grow your money and learn easy ways to save on taxes. These articles will help you understand how to make smart choices for building your investments over time.

I read a lot of articles about dividend investing. A number of them offer reasonable advice while a few appear to try to find a problem with this investing strategy. When I read the latter, I find that it usually concerns itself with problems encountered when one uses the method in the wrong way, like concentrating on high dividend stocks only. What I am seeking is an identification of flaws in the proper implementation of the strategy itself.
A question that has been asked on numerous message boards is whether or not the idea of dividend reinvestment programs is dead. While there are gradations of nuance within the question itself, the answer is that yes, they are dead. The idea, itself, is solid for dividend investors, but the execution is lacking.
I have been involved in dividend investing for nearly thirty years. Over that time, I have learned a number of the ins and outs of the process, and have seen the changes.
Income from dividends is a category that needs to be understood. Planning for next year’s taxes starts at the beginning of the tax year, so placing this article in April offers a chance to plan for the coming year.
This website and blog have an affiliate relationship with Stock Rover, so I thought that I would get that out in the open. This means that if you send them money, a portion benefits this website.
“Successful investing is about managing risk, not avoiding it.”Benjamin Graham
On July 15, Codorus Valley Bancorp, Inc. announced a Quarterly Cash Dividend of $0.10 per common share, down 37.5% from its previous quarterly dividend of $0.16. After nine years of consecutive annual dividend increases, the company is no longer listed in the Dividend Challengers list.
There are as many ways to evaluate stocks as there are notes on a piano – perhaps more – some better than others, some completely worthless. There is one, however, that is primarily geared toward dividend growth stocks and that is the Dividend Discount Model (DDM).
Noise is an interesting thing. There are nights I spend in hotel rooms where the inhabitants of an adjoining room are not as mindful as I would wish during times when most people sleep. We have all encountered these annoying situations and the only way to handle them is to ignore the noise. Easier said than done.
We are not officially in a recession but yes, we are in a recession. Those who have been investing only during the longest bull market in our nation's history are encountering new territory. It is no longer a case of casting one's money into the winds of stock investments and having confidence that it will land on fertile soil. We have entered turbulent times and there will be true losses, but there will also be true opportunities for those with a steady hand on the wheel.
The effects of social distancing are different for each person. Some have plenty to do at home while others have run out of projects. I am fortunate to be in the former group but can sympathize with the latter. Regardless of one's situation, there is one thing that every dividend investor should be doing at this point and that is to research prospective companies. There are numerous bargains available but immediately being drawn to the shiniest object could be a mistake.
About 25 years ago I decided to have each of my two children select a company in which I would purchase stock. I wanted them to understand that saving money was a good idea, and investing while saving was an even better idea. It was essential that they learn the evils of credit card debt and understand how to create and use a budget.
"Life can only be understood backwards—but it must be lived forwards”Kierkegaard
When speaking with some people about investing, I realize that while they know that it is important for their future, they generally understand pretty close to nothing about the subject. Initially I question whether or not they are actually ready to invest. If so, then instead of suggesting that their starting point be to go through a long period of (what will probably be extremely boring to them) learning, I recommend a simple low expense ratio S&P 500 index fund as a starting point. After all, even Warren Buffett has expressed doubt that he can continue to do as well...
Cash flow is a measure of the monies that flow into and out of the company over a specified period of time. A positive cash flow means that the company has reserves to pay debts, reinvest in the business, and offer a continuing (and hopefully, increasing) dividend to the company’s owners.
When I worked for Space Telescope Science Institute our deputy director was John Grunsfeld. He was a NASA astronaut who had participated in three servicing spaceflights for the Hubble Space Telescope and two other shuttle missions, logging over 800 hours in space and eight spacewalks. He gave a talk that centered on risk, as a common question to him involved the obvious danger of his previous occupation. The emphasis of the speech was that one needed to understand the factors inherent in what one is doing, otherwise the perception of risk can be exaggerated or underestimated. This is definitely true...
My wife saw an advertisement on television for a peeler. It showed someone peeling apples, pears, carrots, and on and on. As this had been one of her frustrations in the kitchen she ordered it, saying that it would change her life.
Dividend investors, by nature, look for stable companies to add to their portfolios. Wild swings and monster gains are fine for the speculation crowd, but for the dividend investor concentrating on retaining one’s wealth is of paramount importance.
There are ETFs that cover pretty much any groupings one can think of and that includes issues of interest to long term investors.I look at four ETFs that are geared toward the prudent dividend growth investor.
I have been a fan of mutual funds since I began investing. Funds with bundles of companies can offer diversification to one’s portfolio, helping to smooth some of the swings that individual companies offer. This diversification reduces risk and gives the investor a better chance to sleep well at night.
Dividend Champions are companies that have increased their dividend for the past 25 years, Contenders for the past 10, and Challengers for the past five. Companies are regularly removed from these lists for a variety of reasons. United Community Financial was removed in February 2020 because it merged with First Defiance Financial Corp. Two River Bancorp was removed a month earlier because it had been acquired by OceanFirst Financial. KAR Auction Services spun off IAA in August 2019, which forced a lowering of its dividend. In January 2019 Dun & Bradstreet went private, so it was removed.
One may wish to blame the recession for Supervalu’s problems, and while that is partially true, competition and its inability to react is more on target. Whole Foods was at one end of the food spectrum with its dominance in the organic and health-food segment. The other end showed Wal-Mart offering the same products at discounted prices. Supervalu was stuck between the two extremes.
Dividend Champions are companies that have raised their annual dividend each of the past 25 years. While this is not a guarantee that they will retain that status indefinitely, there is a degree of confidence that most will for a very long time.

DRIP Investing (Dividend Reinvestment Plans)

The term DRIP is an abbreviation for dividend reinvestment plans, which offer investors the opportunity to reinvest all, or a portion, of their dividend payments back into a company's stock. Oftentimes, companies will allow investors to purchase additional shares of stock through these programs too.

What is DRIP Investing?

Dividend reinvestment plans are sponsored by companies that allow individual investors to purchase common stock without going through a broker. The name comes from the plan's policy of allowing the investor to automatically reinvest dividends to purchase additional shares of stock.

Many DRIPs are offered to investors free of any participation costs, while others charge relatively small administration fees or commissions. While the name implies these plans are limited to reinvesting stock dividends, some plans allow participants to directly purchase a company's stock. This enhanced practice is sometimes referred to as optional cash purchases or OCPs.

Advantages

A large number of companies offer dividend reinvestment programs, and participation rules are usually outlined in the investor section of the company's website. Since these plans are flexible enough to allow even small purchases without a broker's fee, it's hard to find any downside to these offerings. In fact, there are several significant advantages of these programs including:

  • Low Cost of Entry: investors don't need a lot of money to enroll in these programs, most companies allow the purchase of just a single share of stock, and often this purchase is at a discount.

  • Cost Effective: since the investor isn't paying brokerage fees, all of the money is put to work. Over 100 companies allow investors to purchase stock at a discount to the current market price through optional cash purchase plans, or OCPs.

  • Dollar Cost Averaging: finally, many of the DRIPs allow investors to purchase stock through automated weekly or monthly deductions. This long-term purchase strategy provides the investor with a less painful, and more structured, approach to buying stocks.

Participation

Generally, there are three ways investors can participate in dividend reinvestment plans:

  • Company Run Plans

  • Transfer Agent Plans

  • Brokerage Plans

Company Run Plans

Many companies run these programs through their investor relations or shareholder services departments. Several companies have even started to offer Individual Retirement Accounts in addition to their reinvestment plans. Companies may have participation rules that include owning at least one share prior to joining the dividend reinvestment plan. They may also require the stock to be in the investor's name rather than street name. A phone call to the shareholder services department is an effective way to learn about company-specific participation rules.

Transfer Agent Plans

Due to the overwhelming popularity of some DRIPs, companies may engage the help of transfer agents to administer their programs. The transfer agent is a third party broker that typically runs plans for many different companies. Since the transfer agent is running multiple programs using the same resources, they can do it more cost-effectively than some of the issuing companies.

Some of the larger transfer agents include American Stock Transfer & Trust Company, Mellon Investor Services, and ComputerShare.

Brokerage Plans

While dividend reinvestment programs reduce the fees collected by traditional brokerage houses, many of these firms now attempt to mirror DRIPs by offering the ability to reinvest dividends without charging a fee. Unfortunately, these plans usually lack the most attractive feature of a real DRIP: The cash purchase of new shares of stock without fees.

How Many Stocks Should You Own?

A reader asked me a question that boiled down to them wanting to know how many stocks should be in their portfolio. It is a question with an answer that will be different for each person, but knowing how to arrive at that answer is simple.

Many people own more companies than I do. This is a personal choice, so if that number works for them, then it is the correct number. As a serious photographer who works with historical processes, I have always said that whatever means one chooses to share their vision, if it is successful for them to do so, then that is the correct choice. As noted in a previous article, I feel that this is the same with investing.

Figuring This Out

Initially, my approach to selecting companies was haphazard. Upon seeing a company that I thought would do well in the short run, I would buy it – simple as that. It led to numerous trades, which worked well, until it did not work well. In the late 1990s, most of us were geniuses, and in the early 2000s, most of us were idiots. (The uninitiated can look at the DOW’s price change during those periods.)

Reexamining my investment philosophy, I decided to examine what had worked for me and what had not. One of the many lessons learned from the early 2000s was that I had owned too many companies. To remedy this, I took an example from one of my hobbies – numismatics.

I started collecting coins when I was around 7 or 8 years old. Pennies were the only thing I could afford to collect (even in the late 1950s, 25 cents a week allowance was not much). As time went on, I could afford to invest more into my hobby and expanded to other denominations, and eventually ended up all over the place. I finally decided that it was time to specialize.

Specialization led me to 18th-century British tokens, with which I had grown a fond interest, as each token had a real story. Even this was too wide, so I narrowed things down to collect only tokens in R. C. Bell’s book, Commercial Coins. I now have a focused collection of interesting tokens over two hundred years old. Yes, I still have most of my other coins, but I am most proud of the token collection.

Back to Investing

Through the years that led up to the early 2000s, it was dividend companies and my participation in DRiPs that had been steadfast. I had “collected” dividend companies that looked good, and in turn, good things had happened.

The issue was that I had so many companies that I felt like I was in a boat without a paddle. I was going in the right direction but would not be able to maneuver if an obstacle got in the way.

As in chess (another hobby of mine), it was time to figure out how I wanted the board to look, and then work to make it so. I decided to trim the number of companies I owned to the point where I could track them.

Finally, the Answer

How many dividend companies should one own? One should own only as many companies as one can track. Owning companies that are not within the understanding and/or view of the owner moves toward speculation – one simply hopes that things will work out in the end.

What do I mean by "track?" You track a company by knowing what the company is doing, and you know what a company is doing, in the least, by scanning the quarterly and annual reports. These reports can be scanned because you are looking for specific things explained within.

It goes back to a suggestion I made long ago that one should write down (or type into a document) the reasons for buying a company before making the purchase. By physically committing the decision to paper or an electronic document, the reasoning is real, and ensures that there is more to the decision than, "I think it will make me money."

The information within the quarterly and annual reports should support those reasons. If they are not supported, then the company should be flagged for further study. Was my initial assessment incorrect? Do I understand the reason for the change? Is this a temporary setback, or is it a change in the company's direction?

An extreme example was my purchase of Enron. When I started buying shares, the company was the largest supplier of natural gas in North America, which was the reason I selected it. They had solid earnings (until they didn't and lied about it) and fulfilled my reason for purchase. We all know what happened later.

The red flag came when the company changed its focus to something completely outside of its core competency. I hung on for a short while, hoping that this would work itself out, but soon realized that something was seriously wrong and sold my shares. Of course, this is a mere thumbnail of what happened but is instructive. One cannot buy and hope, one needs to buy and understand.

A more concrete example for me is National Fuel Gas. I have made several purchases because I see the company’s ability to grow. For instance, they intend to expand their interstate pipeline system through several projects currently underway. It only takes a moment to check the progress of this in their 10-Q report.

I urge readers not to jump to the conclusion of selling if a milestone is not reached. Especially now, with COVID still creating havoc, there are many legitimate reasons a company may not be able to deliver. One needs to understand if the situation is a temporary setback or a permanent one, which could be the difference between holding and selling.

Also, though a company's direction may be changed, this should not necessarily be the death knell for holding the stock. Changing circumstances require consideration, but if we are not keeping track of the company in the first place, then the point is moot.

In addition to what the company is doing, I like to keep track of the ex-div dates. It does happen that occasionally I come across some extra cash. The question then becomes how it will be invested, and I always want to select the best company available. As often as not, however, several current holdings look good to me.

A company with an ex-div date on the horizon will often serve as a good tie-breaker. It allows me to grab a small advantage when it comes to getting a return on my investment. I used to keep a list of such dates in my spreadsheet, but that required manual entry, which was less than convenient. Fortunately, Stock Rover has this information easily at hand.

Chart available via Stock Rover

Another reason for keeping track of the ex-div date is that when it is established, not only the date of the next dividend is known, but also the amount. A company that cuts its dividend is a sell signal for me, so I want to know if/when it happens.

Finishing Up

I have mentioned photography, numismatics, and chess as hobbies in this article and could continue with music composition, reading, travel, writing stories for my granddaughter, and so on. I have a host of things outside of investing where I want to spend my time, so for me, a dozen companies appears to be the sweet spot of having enough companies in which to invest, and not so many that it takes away from the other things I want to do.

This way, I can spend a couple of hours a week tracking the companies I own, writing articles for this blog, and considering new investments if the need arises, and still have time to spend on my many other interests.

I have friends who spend more time with their investments, so creating their own mutual fund works for them. I own a couple of index funds for diversification, so I do not see this need for myself. However, if this works for others, then it is the right decision for them.

So my advice is not to own more stocks than you can afford to follow, and that number can range between just a few to a hundred or more (yes, I know people who own that many). There is no right or wrong number, as long as that number works well for you.

Are Dividend Reinvestment Programs Dead?

Dividend Reinvestment Programs have been a staple for acquiring shares for years. An alternative that supersedes this option is holding shares through a broker that offers the same advantages. It is instructive to evaluate this option to determine if this DRiP still has a place for the dividend investor.

A question that has been asked on numerous message boards is whether or not the idea of dividend reinvestment programs is dead. While there are gradations of nuance within the question itself, the answer is that yes, they are dead. The idea, itself, is solid for dividend investors, but the execution is lacking.

I will expand on this to assure the reader of the exact reasons for my opinion.

Dividend reinvestment programs go back many years. My grandfather was an engineer for AT&T. I am not sure of the exact years, but probably from about 1925-1965. AT&T, as well as numerous other companies, encouraged their employees to purchase stock in their company, and made it easy for them to do so.

There were many reasons for this, but one of the best was to give employees some "skin in the game." If the company did well, then the shareholders did well. Employee shareholders had added incentive to perform their best for the good of the company.

My grandfather participated in AT&T's dividend reinvestment program, and when he passed away, my mother got half of the stock that had accumulated. My parents used that money to build a house that my father designed (he was an architect). This was an excellent example of the strength of setting a little aside regularly over a long period of time.

Comsat check somewhat participated in one 35 years ago. When I worked for Comsat, one of my benefits was to receive stock in the company. At the time, I knew nothing about investing and was a little confused when I would occasionally receive a check for a pocketful of change. Eventually, the company laid off a bunch of us and I stopped receiving those mystery checks.

I began earnestly investing in the early 1990s, and upon reading an article in The Motley Fool about DRiPs, I became immersed with the idea. It made so much sense to make small purchases regularly. I saw what my grandfather had accomplished and decided to go that route.

This resulted in becoming a weekly author for the website. When Internet companies fell apart in 2000, they purged the paid authors on the website, the company decided to charge admission to their message boards, and I started writing my own drip investing advice.

This is a long explanation to show that I appreciate the strength of dividend reinvestment programs and stress the importance they have had in my life, as they were instrumental in allowing me to retire years seven years before taking Social Security. But like any tool, despite its success in the past, its continued use constantly needs to be reassessed.

Today there are advantages to using a discount broker instead of starting a traditional DRiP. To successfully do so, the broker must have the ability to offer the two things that make DRiPs so attractive.

  • Make fee-free purchases

  • Automatically reinvest dividends

I will look at these one at a time.

Make fee-free purchases

My grandfather did not have to pay a fee to make AT&T stock purchases through the company. Over 20 years ago, when I found an interest in DRiPs, many companies allowed share purchases without cost. As the popularity of these programs increased, many of these companies decided to charge for purchases.

These fees came not only in the form of purchases of new shares but sometimes even in the purchase of shares through dividend reinvestment! When I first started to see this happen, it was hard to believe. Even my beloved Coke, a company created by a distant relative, Asa Griggs Candler, and one that I had held for many years, attending numerous annual meetings (and meeting Warren Buffet), began to charge such fees.

For years, I wrote about the many quality companies that offered fee-free DRiPs and pointed people to MoneyPaper (now directinvesting.com). Now I see the company offers enrollments for only 55 fee-free DRiPs. The trend has become painfully obvious.

Numerous discount brokers allow the purchase of equities without cost. When I started investing in 1992, purchasing stock (if I remember correctly) cost $29.95 at Schwab. I remember going to their office in Annapolis twice to make purchases. Now purchasing through them is free. I use Ally, but TD Ameritrade, Fidelity, and many others offer the same thing.

Automatically reinvest dividends

It happens regularly when I get an email from Ally letting me know that I have received a dividend. It is a real pleasure to log into my account to see how many additional shares have been purchased automatically and added to my account.

This is a more recent innovation that has, in my opinion, nailed shut the coffin of dividend reinvestment programs. For many years one needed to manually purchase whole shares only after accumulating enough cash through dividends. One advantage of DRiPs was that the program did this automatically, and purchases were made for whole and fractional shares. Now that discount brokers offer the same ability, this advantage previously unique to DRiPs is now common.

But Will It Last?

I asked myself this question when I first became aware that brokers offered everything the traditional DRiP offered. After all, I had seen the coming and going of companies like BuyAndHold.com, which initially offered free purchases, then charged monthly fees, and then went out of business.

Zecco is another broker that initially offered free stock purchases, then decided to charge. I am with Ally because I originally created an account with Zecco to get free trades, and Ally acquired Zecco, which eventually decided to go fee-free.

Things change over time. Small companies may attempt to build a business model on innovation, but oftentimes that model is either flawed or does not offer enough of a revenue stream to continue. Sometimes companies are just too early with their ideas. However, when the big boys make a change, like going fee-free, it becomes the standard, and I do not expect this to be changed any time soon.

The Biggest Problem With DRiPs

The major problem with DRiPs – and this existed when I first started participating in them – is that one can only enter a DRiP as a shareholder. That is a true barrier to entry.

Long ago, I wrote a series of articles that explained how to get a share, making entry into the program possible. To the uninitiated, purchasing shares through a broker does not make one an actual shareholder. When you purchase through a broker, the broker owns the share for you. The broker is the actual owner of the share.

If you want to become the actual shareholder, you need to request that a physical certificate be sent to you. Once obtained, you are the legal shareholder and become eligible to participate in the dividend reinvestment program. For years at DRiPInvesting.org, we kept track of discount brokers who would send the certificate for a small fee, but these days one is looking at around $100 to have a physical certificate mailed (if the service is even offered).

directinvesting.com used to offer a service that would make the initial purchase for you, and then enroll you in the company’s dividend reinvestment program. I have mentioned them many times and long ago used their service. However, now they are sending people to Temper of the Times, which I believe to be a spinoff of the company. I did not have the patience to read through all of the text on their website to figure out the actual cost of getting enrolled in the DRiP, so if you are interested, then have at it.

Canadians do not have as easy a time of this as we do in the United States. For this reason, I created a Share Exchange message board that was for their exclusive use, where participants could offer shares to other participants. If you use it, then do so at your own risk. The board is on Google Groups – when it was on DRiPInvesting.org, it was popular and successful, though one should understand that there can always be problems and disagreements.

Finishing Up

I still have four classic DRiPs from when I first started investing in this direction. I will be moving them over to Ally at some point soon. There is no major advantage to do so, besides the fact that instead of getting quarterly reports, I am now receiving yearly reports. Unless I log into Computershare's system, this information will be a mystery to me until January of next year, when they will send me the information for my taxes.

Not being one to worry or stress over the exact amount of shares I own, it is not a major issue. I do not have plans to sell and will almost certainly hold onto the shares for a long time, allowing them to accumulate over that time. On the one hand, it would be a bit more convenient to see all of my equities in one place. On the other, according to Dividend Growth Investor, a Fidelity study showed their best-performing investors to have been those who did nothing with their accounts.

I do not see any advantage a dividend reinvestment program has over holding a stock with a broker that succeeds in both of the two issues noted above. Actually, going the traditional DRiP route is time-consuming and more expensive, so yes, dividend reinvestment programs are dead.

Additional Resources

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Contributors

George has been investing in stocks since 1992 and founded DripInvesting.org, the foremost authority on dividend investing (acquired in 2022 by Moneyzine). He began his investing journey late, realising he was behind in saving money for retirement and seeing an oncoming threat of college expenses for his two children. What seemed destined for failure was soon followed by success upon realising the advantages of long-term dividend investing. Aside from DripInvesting.org, George has held a role as a weekly contributing author at The Motley Fool, writing numerous articles about dividend investing.
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