Who Here Uses DRIPs?

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tylerrr
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Who Here Uses DRIPs?

Post by tylerrr »

Anyone here utilize DRIPs?

I'm thinking of starting a few because of the low/no fees and automatic investment of dividends to purchase more shares over time.

I'm talking about typical DRIP champions over history like JNJ, KO, K, CLX, MMM, WMT, etc.

Do you like them? or Why Not?

Most of my money is in the PP, which is good, but I might diversify more into 5 or so DRIPs once the market corrects or crashes from it's current Bull Market.

distracted_at_work
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Re: Who Here Uses DRIPs?

Post by distracted_at_work »

I like them in dividend growth situations, such as Fortis (utilities) or CIBC bank (sorry for Canadian examples) to minimize fees and grow the position over time. I don't like them in REITs or a similar, high-yield, investing for income stock. I don't see as much of a benefit here as you tend to trade growth for immediate income and a DRIP removes that benefit. My 2c.

tylerrr
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Re: Who Here Uses DRIPs?

Post by tylerrr »

distracted_at_work wrote:
Wed Aug 30, 2017 12:33 pm
I like them in dividend growth situations, such as Fortis (utilities) or CIBC bank (sorry for Canadian examples) to minimize fees and grow the position over time. I don't like them in REITs or a similar, high-yield, investing for income stock. I don't see as much of a benefit here as you tend to trade growth for immediate income and a DRIP removes that benefit. My 2c.
thanks, just the fact that DRIPs automatically reinvests and buys more shares with the dividends can have a huge compounding effect because it removes a lot of human error when making investing decisions. Plus some DRIPs have no fees at all or very, very low per transaction.

Yeah, I'd rather have growth than very high Yield instruments because there is a "reason" their yields are so high.....It usually means the share price is going to tank hard eventually. Nothing is free, there is always a trade off.

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Chris
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Re: Who Here Uses DRIPs?

Post by Chris »

Many discount brokers also offer free automatic dividend reinvestment: https://www.brokerage-review.com/discou ... okers.aspx

Dream of Freedom
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Re: Who Here Uses DRIPs?

Post by Dream of Freedom »

I use the "FRIP" plan offered through scottrade. I don't pay commissions and can invest my dividends in whatever I want. As for drips, there are a lot of good things about them, but you may want to keep track of position size. They usually take a small amount out of your checking account each month as well as reinvest dividends and this can leave to large amounts of money over time. The problem is that it can lead to large amounts of money over time put into one stock without the investor understanding the risk of having such a large position size. This can happen because these are largely passive with little personal involvement and the amount that they take out at any one time is small.

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Re: Who Here Uses DRIPs?

Post by jacob »

DRIPs are a tax mess when selling in taxable because of needing to keep track of the cost basis. This depends on your setup: FIFO, LIFO, averaging, etc. It's relatively easy if you're dumping your entire position---but you might not want to do that. Otherwise, you need to determine which shares are ST and LT.

Not a problem in retirement accounts.

Some DRIPS will reinvest for free or even provide shares at a discount e.g. 95% of the price. This is useful if you're taking long term positions or you have small positions with small dividends where it doesn't make sense to pay commission to reinvest, say, $200 bucks.

tylerrr
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Re: Who Here Uses DRIPs?

Post by tylerrr »

jacob wrote:
Wed Aug 30, 2017 5:15 pm
DRIPs are a tax mess when selling in taxable because of needing to keep track of the cost basis. This depends on your setup: FIFO, LIFO, averaging, etc. It's relatively easy if you're dumping your entire position---but you might not want to do that. Otherwise, you need to determine which shares are ST and LT.

Not a problem in retirement accounts.

Some DRIPS will reinvest for free or even provide shares at a discount e.g. 95% of the price. This is useful if you're taking long term positions or you have small positions with small dividends where it doesn't make sense to pay commission to reinvest, say, $200 bucks.
right, but if you're planning on only using the dividends for cash/income and not selling for many years, it can be a good idea like you mentioned because of no fees/discount, etc. ??

Yeah, that would basically be my plan. I don't want to deal with taxes like you said when I sell only part of my shares in a stock. It would basically be a long term, compounding strategy where I would eventually just use the dividends to supplement my income.

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GandK
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Re: Who Here Uses DRIPs?

Post by GandK »

I have not used DRIP on individual stocks, but for a long time I DRIPped all the mutual funds we own that throw off dividends, e.g. Contrafund. It worked great.

The only reason I'm not still DRIPping those funds is because we're close to my husband pulling the plug on his job and are therefore trying to build up cash.

FBeyer
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Re: Who Here Uses DRIPs?

Post by FBeyer »

jacob wrote:
Wed Aug 30, 2017 5:15 pm
...
Some DRIPS will reinvest for free or even provide shares at a discount e.g. 95% of the price. This is useful if you're taking long term positions or you have small positions with small dividends where it doesn't make sense to pay commission to reinvest, say, $200 bucks.
Am I stock-retarded here? 95% sounds like an amazing discount.
If that is the case, who is (and how are they) making so much money on the reinvestment that it's a lucrative deal for everyone?

jacob
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Re: Who Here Uses DRIPs?

Post by jacob »

Haha ... sorry, I'm in the habit of multiplying my corrections, so 5% discount. 0.95x the price.

FBeyer
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Re: Who Here Uses DRIPs?

Post by FBeyer »

jacob wrote:
Thu Aug 31, 2017 7:07 am
Haha ... sorry, I'm in the habit of multiplying my corrections, so 5% discount. 0.95x the price.
Yes, that's what the post says precisely, but I still think that 5% off sounds like a lot. I must be missing something here. Who the hell, and why the hell, would ANYONE in investing give a 5% discount?

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Re: Who Here Uses DRIPs?

Post by jacob »

There are a few reasons. It stabilizes the share price. It's cheaper for companies to pay out in shares instead of cash (that's why they do equity financing in the first place). Most companies, due to buyback programs, will own some of their own shares which they can dish out again as dividends. It also encourages [long-term] holding which companies like because it's easier to plan for.

Cash-strapped companies will sometimes offer to pay their dividend in shares rather than cut it. That's not a DRIP but it's similar.

5% can be cheaper than paying interest to borrow the money to pay it out ... which is what most companies do.

Some companies will offer plans (for their own shares) at a higher discount (10-15%) as a way to vest/gain loyalty. I've seen private companies offer part of the compensation at 30%+ discounts for the same reason (and also to save money during the growth phase). Workers with these plans then carry double risk if the company underperforms.

I would still like to emphasize the gnarliness of using a DRIP program in a taxable account if that's the plan. Say you have 6 DRIP companies and hold them all for 20 years. That's 6*4*20=480 individually reinvested share lots that you have to keep track of cost basis and date for when you sell again. AAAAAAAAAHHHH!! :shock: DIY is a giant pain (just imagine the spreadsheet you need to maintain) and paying an accountant to go through 20 years of statements is... expensive! So better make really sure that this is somehow done for you automagically before signing up. In any case, that's why I always take cash despite the discount. *** This is under US tax rules ***

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