DRIPs/SIPs/Synthetic DRIPs

[Operabob]

For Canadian Co.s it depends on the Transfer Agent.

Co.s with Computershare mostly allow you to sell through the PLaN at the same schedule they allow you to purchase: quarterly or monthly.

Co,s handled by Cibc mellon as TA mostly require you to take possession of shares and sell them through a broker. They can't sell a partial and experience shows that you only have a partial left they'll cash it out for you.

OB

[2 yen]

How should I determine when I've reached my allocation limit for XXB / XSB? In an RRSP, would holding ONLY these two ETF's be unwise?
Thanks.

[AltaRed]

How should I determine when I've reached my allocation limit for XXB / XSB? In an RRSP, would holding ONLY these two ETF's be unwise?
Thanks.

Depends how much of your FI component you want (or your IPS says should be) in bonds. I've seen some anecdotal information suggesting maximum of 50%. Personally, I would not go more than one third in bonds, the rest being a mix of cash, GICs and preferreds (the latter preferentially held in my taxable account).

I don't see any reason why holding only those 2 ETFs in an RRSP would be unwise... during accumulation phase. I would want to hold some individual bonds or a GIC ladder during RRIF phase though with maturities to match my withdrawals (and eliminate the potential of capital loss).

[2 yen]

Alta...your response is kinda what I thought. The beauty of these two ETF's is that one can do a compound interest calculation and find out how much you'll have in the future, of course using today's payouts. It is conceivable that I won't add to my RRSP again, but that I will not touch it for 12 or 13 years. Seems to me that if one trusts the Scotia indexes, my plan may be somewhat idiot proof. Any thoughts? My taxable account holds the vast majority of my portfolio, blue chips and prefereds mainly.
Thanks.

[AltaRed]

I don't see anything wrong with the Scotia indices on which XSB and XBB are based.The debt market is large and mature.

[pho88]

I recently setup a DRIP through RBC Direct Investing for my BMO shares. When the dividends where paid, I was given full shares, and the left over cash. Is this right? I was under the impression that I should of gotten partial shares for the left over cash.

Thanks,

-Paul

[AltaRed]

I was under the impression that I should of gotten partial shares for the left over cash.

DRIPs are normally done in whole shares.

[pitz]

There are two kinds of DRIPs in the vocabulary of financialwebring:

a) DRIP plans offered directly by issuers (stocks). These are run to allow individual shareholders who own their shares directly (*not* through an intermediary such as a broker) to re-invest dividends and to purchase more shares with periodic cash payments.

b) 'synthetic' DRIPs offered by brokers.

Issuer-sponsored DRIP plans typically allow fractional re-investment. Very few 'synthetic' DRIPs, and certainly not the ones offered by the major banks/brokers, do not permit fractional share re-investment.

[Bylo Selhi]

'synthetic' DRIPs offered by brokers.

For completeness, there are actually two variants on this.
(a) The broker receives the dividend revenue and uses it to buy shares for its DRIP customers on the open market.
(b) The broker receives the dividends from the transfer agent in shares of the underlying stock.

The advantage of (b) to the broker is that it costs them nothing to obtain your shares and to you is that if the stock issuer offers a discount (usually 3% to 5%) on direct purchase of shares by existing shareholders then that bonus gets passed on to you.

TD Waterhouse uses both (a) and (b) to implement its synthetic DRIP. Contact your broker to find out which stocks are eligible for synthetic DRIP program and under which variant. RBC used to publish such a list on their website but I couldn't find it now.

[Operabob]

pho,

Where did you hear about DRIPs?

I'm asking because it's quite common to get the various types of DRIPs mixed up.

People like myself, who DRIP very actively (and we all know how painful that can be) use the term DRIP when referring when were referring to a DRIP that comes with an SPP (stock/share purchase plan) attached.

We say DRIP but mean DRIP + SPP by default.

The advantages of this plan allow us to buy further shares in small dollar amounts directly from the company through their transfer agent commission free. These plans, depending on the transfer agent calculate "partials" from 4 to 8 decimal places. Your dividend is fully reinvested.

Brokers, on the other hand, offer something that mimics a DRIP. In the DRIPping community we refer to this as a synthetic DRIP. The big differences for us is that in a synthetic DRIP:

1. Dividends are reinvested in a combination of whole shares and cash in your account.
2. The only way to buy further shares is to pay the broker's commission.

If you're interested in BMO's DRIP + SPP, even though they have one, BMO cannot discuss it with you because when you opened your brokerage account you signed a Power of Attorney (PoA) authorizing the broker to act as owner on your behalf for any companies purchased. BMO must talk to your broker instead of you.

While BMO offers a DRIP + SPP as the broker gains no commissions from it they are not interested in dealing with it or learning about them.

If you're interested in DRIPs + SPPs then visit:

http://dripinvesting.org

You might also like to read the following articles reprinted here from Canadian MoneySaver Magazine:

http://dripinvesting.org/Articles/Canad ... 003/07.htm

http://dripinvesting.org/Articles/Canad ... 003/05.htm

http://dripinvesting.org/Articles/Canad ... 003/03.htm

OB

[Operabob]

http://dripinvesting.org/Articles/Canad ... 003/07.htm

http://dripinvesting.org/Articles/Canad ... 003/05.htm

http://dripinvesting.org/Articles/Canad ... 003/03.htm

Guess you have to close them individually.

OB

[Operabob]

http://dripinvesting.org/Articles/CanadianDRiPper/2003/03.htm

That should do it.

OB

[AltaRed]

I've only seen partial share DRIPS in employee share purchase plans where partial shares (of the employer) were being purchased by an agent contracted to do manage that plan (I particpated in such a plan when working).

I do not know why an investor would want to mess around with partial share DRIPs in any circumstance. I found the SPP I was in a PITA - monthly purchases via payroll deduction plus re-invesment of dividends each quarter.

[Operabob]

Some US brokerages do partials.

CSO does partials but I think they're a bit over rated.

The very best DRIPping (which I'll eventually get around to) would be to take all dividends as cash and direct them into the best potential situation. e.g.

If you assume BMO & BNS have more potential upside than BNS at the moment perhaps it would be better to take the BNS dividends and send them with an OCP to BMO or CIBC.

Afterall the big are constantly leap-frogging one another.

Personal choice thing though.

OB

[BRIAN5000]

'synthetic' DRIPs offered by brokers.

For completeness, there are actually two variants on this.
(a) The broker receives the dividend revenue and uses it to buy shares for its DRIP customers on the open market.
(b) The broker receives the dividends from the transfer agent in shares of the underlying stock.

The advantage of (b) to the broker is that it costs them nothing to obtain your shares and to you is that if the stock issuer offers a discount (usually 3% to 5%) on direct purchase of shares by existing shareholders then that bonus gets passed on to you.

TD Waterhouse uses both (a) and (b) to implement its synthetic DRIP. Contact your broker to find out which stocks are eligible for synthetic DRIP program and under which variant. RBC used to publish such a list on their website but I couldn't find it now.

gee why is it bylo knows more thne the people answering the phones at TD??

[BRIAN5000]

http://dripinvesting.org/Articles/CanadianDRiPper/2003/03.htm

That should do it.

OB

Any drips that can draw right from my bank account yet ??

Other then US drawing on a us bank account.

[Operabob]

Not that I can think of off the top of my head.

Most say no but it seems to me I recalled a few that might allow it. I'll have to wade through my OCP statements.

OB

[pho88]

Wow, thanks all for the detailed replies. I just called RBC and it sounds like it's a synthetic DRIP, as the guy on the phone said he wasn't aware of the SPP component. A little dissapointing as I have some shares whose dividends are just ~$5-10 dollars short of the cost of a full share. My goal with this account is to get a basket of stocks and drip them for my children who are 3 and younger, so that by the time they are ready, I can perhaps teach them about investing and/or give them a headstart when they move out.

[wanjeyin]

I've got a related question.

I currently hold all my assets with BMO Investorline and have been doing so for a while because it is easy to move and track my assets in the various accounts I have with them.

That being said, I am frustrated in that only 188 securities are eligible for their DRIP program. None of the dividend paying stocks I'm interested in purchasing are eligible for DRIPing under BMO Investorline. As such, I am considering transferring my non-registered assets to another brokerage.

Can anyone recommend a brokerage which can DRIP most if not all stocks listed in the TSX?

Thanks!

AJW

[pmj]

AFAIK, TDW's synthetic DRIP covers ?all? shares. It certainly covers all the dividend-paying stocks I've recently bought. I've also started to make odd-lot orders to get enough shares that a DRIP will be effective - eg for a stock that yields less than 4% you need more than 100 shares to have enough cash each quarter to buy one share.

[Bylo Selhi]

Can anyone recommend a brokerage which can DRIP most if not all stocks listed in the TSX?

Problem is that no Canadian discount broker (that I know of) publishes a list of what they DRIP. That makes comparison shopping difficult.

AFAIK, TDW's synthetic DRIP covers ?all? shares.

AFAIK TD doesn't DRIP all Canadian-listed ETFs and none of the US-listed ones. But as I just said, since no one publishes a list of what they do and don't, nobody knows for sure

[wanjeyin]

Can anyone recommend a brokerage which can DRIP most if not all stocks listed in the TSX?

Problem is that no Canadian discount broker (that I know of) publishes a list of what they DRIP. That makes comparison shopping difficult.

AFAIK, TDW's synthetic DRIP covers ?all? shares.

AFAIK TD doesn't DRIP all Canadian-listed ETFs and none of the US-listed ones. But as I just said, since no one publishes a list of what they do and don't, nobody knows for sure

For starters, here is the Bmoinvestorline list:
http://www.bmoinvestorline.com/FAQs/FAQ_DRIP.html

As you can see they have a lot of income trusts and and a good number of corporations. Just not corporations that I would like to drip eg. PWF, HSE, FCR etc.

[Bylo Selhi]

For starters, here is the Bmoinvestorline list:
http://www.bmoinvestorline.com/FAQs/FAQ_DRIP.html

Thank you. That list is almost a year old. It also doesn't include any BGI Canada ETFs. TD WH e.g. DRIPs at least XIU, XIC, XSB and XBB.

Anyway, that's one broker. Any others?

[Operabob]

Wow, thanks all for the detailed replies. I just called RBC and it sounds like it's a synthetic DRIP, as the guy on the phone said he wasn't aware of the SPP component.

All broker DRIPs are synthetic DRIPs. They do offer an SPP. It's called a "commission" .

As I recall from an e-mail response from E*Trade if it has a dividend they'll synthetically DRIP it.

OB

[Operabob]

Brian,

You might be interested in this:

http://dripinvesting.org/Boards/Read.asp?MID=62466

OB