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To DRIP or Not to DRIP
Posted by: Roadmap2Retire (IP Logged)
Date: February 14, 2014 05:10PM
Dividend reinvestment plans (DRIPs) are investment programs run by publicly traded companies to invest in them and provide shareholders with partial shares reinvested back in the company instead of paying out cash dividends each quarter (or whatever the dividend schedule is). This is advantageous to the companies since they can keep the money in the company where it can be put to good use while providing investors greater stake in the company through the share reserve. Companies usually run these programs through a transfer agent or a brokerage firm. This article takes a look at the overview of the DRIP program and the various advantages and disadvantages to investors using this methodology.
When investing via DRIP, there are a few terms used liberally, and I want to include them here as I use them in the article below. A Share Purchase Plan (SPP) allows you to buy more shares in the company in the future. This is usually a recurring event that you set up with the Transfer Agent or Broker. An Optional Cash Purchase (OCP) is a one-time optional purchase of more shares in the company.
The following are the advantages and disadvantages of the DRIP program.
Advantages of DRIP
Disadvantages of DRIP
The taxation point is a big thorn for me personally. Even though I have a DRIP account with one company, The Bank of Nova Scotia (BNS), I am not convinced that DRIP programs are that great. Do you think there is any value in DRIPping outside tax-sheltered accounts (even with the DRIP discounts)?
Disclosure: I am long BNS. See my full list of holdings here.
Stocks Discussed: BNS,
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