How To Setup DRIP Accounts?

Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 maxDRIP stands for Dividend Re-Investment Plan. It is the corner stone of Dividend Investing as it allows your portfolio to re-invest the dividends and provide compound growth for your investments. No hypothetical compound growth from markets either since you can look at it just like you would when you look at interest. You can extrapolate what you would earn 5 or 10 years from now and you can even throw in some dividend increase as well. The different is in the tax rate.

Related: The Magic of Compound Growth

DRIP have done wonders to my accounts. My dividends grow by approximately 10% annually without adding any extra capital. The shares bought plus the dividend growth are all at work.

DRIP Account Options

Company or Full DRIP Plan

Company DRIP plans or Full DRIP plans are usually managed by a transfer agent such as Computershare or CST Trust Company. There are others in the US managing company plans but those are the most popular. ShareOwner is another way to purchase shares and benefit from fractional shares as I just recently found out. You can read some details over at Dividend Ninja.

What is important to understand is that those services are not real-time brokers. They allow you to purchase shares at specific times usually monthly or quarterly. All of these services provide investors with fractional share tracking. When you start investing and your funds are low, fractional shares are really good. All your dividends are always re-invested with fractional shares. Those fractional shares are put to work for you and will earn you fractional shares over time.

Related: How To Start Investing With Little Money

One point to consider is that the transfer agents do no support investing in tax sheltered accounts. All your investments will be taxable. You can, however, transfer shares to discount brokers if you wish at any point.

There is an expensive way to get setup with transfer agents and there is a cheap way. The cheap way is to have someone transfer a share to you. It’s actually free except for the price of the share. On the DRIP Investing site, there is a forum you can use where many reliable investors will transfer a share to you with a $10 thank you. The thank you money is to simply cover the time and mailing fees needed. I acquired my 11 shares that way starting with one to test the process.

  • Step 1. Decide on the stocks you want. Use this Canadian list and do your research.
  • Step 2. Find someone to transfer a share to you. Use the forum to make contact.
  • Step 3. Send payment as agreed and wait.
  • Step 4. Once you receive the share certificate, you can then open the account and setup your credentials.

It’s important to note that you don’t decide on purchase price. It’s always the market price when you buy your shares.

With the transfer agents, you can participate in the OCP (Optional Cash Purchase) are specific intervals to contribute extra funds. If you are setting up your kids, think about the minimum required for OCP as some might be too high for your taste.

Synthetic DRIP

The synthetic DRIP is a way for discount brokers to re-invest your dividends. There are some points worth noting.

  • Only full shares will be purchased. It means that you need to earn enough dividends to buy a full share at the time of the dividend payment. When you have holdings in the $100 price range, you might need a lot to buy one share. I like stock splits because my dividends can more easily be re-invested.
  • You can DRIP in all of your accounts; non-registered, TFSA, RRSP and RESP. (Full DRIP is limited to non-registered)

Questrade is currently the discount broker I would recommend for new investors. If you need to change later down the road, it’s pretty easy to transfer all your shares in kind – I did that. Many of the big bank discount brokers require you to have $50K in holdings to minimize your fees.

DRIP Discounts

Many companies offer a DRIP discount on shares. When investing through transfer agents, the discount is always applied but it’s important to check with your discount broker to see if they will offer the discount.

The following is a pretty good list of the Canadian companies and their discounts. When a discount is offered, it ranges between 2% and 5%. A 5% is a really nice discount on your purchase price. You can an immediate 5% profit!

DRIPs With US Corporations

Buying US companies to DRIP is possible but you need to be aware of the tax implications. I tend to hold all of my US holdings in my RRSP as Canadians have a tax agreement on dividends when invested in our RRSP. We pay no taxes otherwise there is an automatic 35% withholding rules.

The process becomes a little more involved as you also need to have US banking accounts. On the resource sites and forums I have provided, there are detailed instructions on how to do it if you really want to be setup with US companies.

Kids & DRIP

I have both my children setup with DRIP to teach them about investing and to show compound growth. At their age, it’s not like they understand all those terms, but as they grow and learn more math, the compound growth is something we can start talking and I can show their dividend history over time compared with their contribution.

With annual contributions, which I match, they can think about saving and seeing their investment grow. By the time they are adults, years will have been at work. I hope to teach that time is a really important factor.

Related: How To Transfer Shares to Your Kids

You do receive a tangible paper share that your kids can hold and look at. It makes having a conversation about companies and investors a little simpler while still being a complicated topic.

Readers: Do you DRIP or just keep the dividends?

9 Responses to "How To Setup DRIP Accounts?"

      1. If I’m looking to hold onto the stocks for a long time frame and not worried about buying/selling at specific price points, would there be any issues with holding a significant portion of my portfolio through Computershare?

      2. @jeff

        That’s the right strategy in my opinion as long as you know that the dividends earned will be taxed. It is taxed at a preferable rate and initially it is a very low tax burden. I am earning almost $600 in dividends for the year within my transfer agents investments with $13,500 invested.

  1. Great post on the advantages of DRIP’s, The only thing I suggest is to only use DRIP’s when the company allows you to buy additional shares.

    Computershare also allows direct bank debit for one-time and automatic withdrawals.

    If one also owns a company share which offers DDRP’s you may be able to transfer the share “In Kind” or purchase a share certificate and then set up the DRIP.

    Every serious DG investor should have DRIP accounts and they are especially the best way to get kids invested for their furure.

    Reply
  2. How would I set up a drip with stocks I already own in a discount brokerage like questrade?
    I don’t think they allow it as they simply use their own synthetic drip

    Reply
      1. I also deal with a online discount broker (Investorline) and I”m faced with many dividends that are not high enough yet to reinvest in full shares.

        If I decide to start up an account with a transfer agent (CST for example), am I starting from zero with 1 share to get myself set up on a DRIP plan? Is there anyway to transfer my holdings from my Investorline account to the CST account to get the true DRIP benefits? My current holdings have been held in Investorline for 6 years (not dripping).

        What would you suggest? Thanks for your attention.

        Bonnie

      2. @Bonnie

        I think it’s expensive to transfer the shares out to computershare as you need to request a share certificate. What I don’t know is the full cost of the transaction. It may just be a fixed cost for all the shares but you should contact Computershare for the detailed process.

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