Do you DRiP?

[SingleMomDreamer]

It's salary increase time again, which means another opportunity to save and invest. My 403(b) looks good, and I'm on track to build my savings back to a comfortable level by the end of next year (it took a hit to start a new business). In the past I've enjoyed owning a few individual stocks, which did quite well during my ownership tenure. This time around, I've opened two new DRiP accounts--I find the automatic monthly investment concept appealing, along with very low fees.

Do you invest in DRiPs? How have your DRiPs performed over time? How much of one's investment portfolio should be in DRiPs?

 

[FinanceDude]

It's salary increase time again, which means another opportunity to save and invest. My 403(b) looks good, and I'm on track to build my savings back to a comfortable level by the end of next year (it took a hit to start a new business). In the past I've enjoyed owning a few individual stocks, which did quite well during my ownership tenure. This time around, I've opened two new DRiP accounts--I find the automatic monthly investment concept appealing, along with very low fees.

Do you invest in DRiPs? How have your DRiPs performed over time? How much of one's investment portfolio should be in DRiPs?

My dad started do his form of it in 1959........... Put money in the local utility because as he said it: "My bill kept going up each year"......... Started at $1.50 a MONTH back in 59, quit doing it in 1995. Put in a little more each year. Always reinvested dividends. Total put in was $18,500. Total he made was $313,000, so not a bad deal..........

 

[SecondCor521]

I don't think it matters how much of your portfolio is in DRIPs; I would just consider that a part of my stock allocation and maybe if I got fancier I might figure out which industries or Morningstar sectors those stocks were in.

The only thing I don't like about DRIPs is the accounting nightmare that can ensue if one doesn't have a good recordkeeping system. I don't, so I don't invest in them any more. I used to invest in my employer's stock and had a DRIP option turned on there. First quarter, my dividend bought a fraction of a share. Second quarter, that fraction of a share paid a fraction of a dividend, which bought a fraction of a fraction of a share. Then the company had a spin-off a few quarters later and a stock split after that. Trying to do the proper accounting when I sold was a virtual nightmare. I think I finally said to heck with it and claimed zero basis.

2Cor521

 

[terminator]

I think it depends on the size/scale of your investments. I find it easier just to accumulate all of my dividends and re-invest them in what I think is the best deal at the time (sometime a new stock, sometimes something I already own, sometimes nothing looks cheap so it waits in cash/bonds). Also it just keeps everything "cleaner" to have even lots of stock. Commissions are so cheap these days that I don't see that as a factor either way.

I used to do Drips and they are convenient and free and earned a lot of extra shares for me which turned out to be quite valuable. I would do it again if I were starting out. But like 2Cor said, it can be a record keeping nightmare.

I do dividend reinvestment for my kids through Fidelity since: (1) they offer the service for free, (2) they keep track of the cumulative basis for you and (3) their dividends aren't quite enough yet to make it worthwhile to pool the money and pick another investment.

I also assume that it's tougher to get an "all or nothing" limit order through on 103.7932 shares than an even lot.

 

[JPatrick]

The DRIP concept is wonderful, but in the end it is all about the stock you are dripping into.
At the moment I have only one active DRIP in place and it is a dandy--Duke Power.
Zero cost to invest or to redeem. Nice 4.3% div which they will reinvest for you also. I started by owning 35 shares of Public Service of Indiana--they were eaten by Cinergy after which taken over by Duke. Shortly thereafter Duke spins off SE to shareholders. Besides the 35 shares, I've never done a lump sum addition, I just toss in what is left at the end of the month, generally between 50 to 300 and reinvest the div. This has given me a very tidy stake in Duke , and all for zero cost.
I was recently looking at some other drips and was shocked at the cost of some Hey, this is supposed to be a benefit, not a burden.
I recommend Duke for your drip.

 

[Milton]

As others have said, the fact that you are buying through a DRIP does not make a stock a good or a bad investment. Accordingly, there is no reason why you shouldn't have 100% of your investment portfolio in DRIPs, assuming that you are otherwise comfortable with the companies.

Saving commissions is great (every little bit counts!), but for me the bigger benefit of DRIPs / SPPs is that they promote the habit of investing small amounts regularly. If you are only allowed to invest new money once a month or once a quarter, chances are that you will do that, rather than trying to 'market time' or otherwise get 'cute'. It saves you from yourself!

 

[SingleMomDreamer]

I wonder if the accounting "nightmare" has improved? Both DRiPs go through a third party -- Mellon Investor Services for one, and Shareowner Services the other. All reports are online, including end of year tax statements.

I was also surprised to see some fees associated with each deposit for some of the companies. I ended up with a rather boring stock (Kellogg's) and another with a pretty good track record and demographics on its side (Health Care REIT). Fees are virtually zero until I sell. I'll see how things look in another year, but for now, I find it a very simple way to invest money that might otherwise be "lost" in the budget.

I also play the stock market when opportunity arises and have enjoyed picking a couple of relatively unknowns that have done well. My hope is that the DRiPs make up for some of the risk-taking I tend to take when picking individual stocks.

 

[Financial Jungle Guy]

DRIP lacks the flexibility to control the when, what and how much.

* When - I prefer to accumulate my cash and invest only during market setbacks.

* What - I can pool all the dividends from all the stocks, and invest in whatever I like.

* How much - I control how much to invest. If BAC is giving me 4% dividends, I may choose to reinvest less than that, or I may throw in new money. It's up to me.

I'm with Interactive Brokers, so the transaction fee is a moot point. Someone brought up a good point about accounting.

On the other hand, some DRIPs offer you discounts. That's nice too.

 

[DangerMouse]

I have purchased a number of stocks through DRIP plans over the last 7 years. However, I am currently in the process of transferring the majority of my holdings to my Wellstrade account. Reason being is I no longer have the time to deal with multiple monthly statements, 1099s etc and that combined with issues I've encountered with Transfer Agents made the decision for me.

For me, my favourite DRIPs have been those which are handled directly by the companies rather than contracting out to a Transfer Agent. Both Duke Energy and Hawaiian Electric fall into that category.

I think it is a fabulous way to have a bit of a flutter and watch your stake grow.

 

[terminator]

Reason being is I no longer have the time to deal with multiple monthly statements, 1099s etc and that combined with issues I've encountered with Transfer Agents made the decision for me.

Oh yes, I was reminded of that recently when I switched brokerage firms and (by default) started receiving proxies/annual reports by mail again. I must have received three dozen of them before I could get the electronic delivery switched on. I have a friend who owns a printing company and he encouraged me to keep receiving them by mail.

 

[ChrisC]

We had a DRIP in Dominion Resources (Virginia Power) for many years; eventually, we cashed out and made a nice profit to invest in my wife's then start-up business/practice. We then came into a sizeable amount of money and I invested that in Dominion Resources, in its DRIP. (You do save stock commission fees.) Like others have said, a DRIP should not be the primary reason for investing; you have to look at the underlining stock; My reinvestment in Dominion plunged by 25% (stock dilution for issuance of additional equity) within 6 months, but it eventually went up and we cashed-out years later with decent capital gains.

I have several DRIPs in my IRAs, so you don't really have to deal with the accounting headaches. I think it's a good idea to choose a solid company with an in-house DRIP feature and purchase the stock in a tax deferred account. One company that has feature is Johnson Controls, Inc., which has been doing extremely well recently.

 

[haha]

Not if I shake well.

Ha

 

[Jarhead*]

Not if I shake well.

Ha

Yep. "Catch and release" should be reserved for trout fishing.

A good "follow through" is a sports metaphor that can be very handy in
other activities. (Especially for me and thee).

 

[HFWR]

Two guys standing at the wall 'o' urinals...

One guys says to the other, "You were circumsized by Rabbi Kowalski, weren't you?"

"Why yes! How'd you know that?"

"Because he cuts on the bias, and you're pissing on my shoe..."

 

[grumpy]

I don't know if it is still the case (since I am no longer in the accumulation phase) but in the 90's I DRIP'd into a number of companies that gave a 5% discount. Along with the no commissions that gave me an immediate and guaranteed return of 5%. Add that to a 3 to 4 % dividend and you are already way ahead of the game. I eventually owned 25 DRIP stocks worth over $250,000. I then moved them all to Buy and Hold Securities. Check them out at:

https://www.buyandhold.com/

Grumpy

 

[unclemick]

1989 - 2007 Down to one file cabinet(forum joke) 12 stocks from 44 Drip plans(two file cabinets) around 2003/2004.

Used Moneypaper and Mergent's Handbook of Dividend Achievers.

Trying to slowly(tax wise) close out and put the keepers in my VG broker account. 14th year of ER - trying to get -'more simple.'

heh heh heh heh - great fun for those of us who 'just gotta do some putzing'. 85% Target Retirement, 15% stock including DRIP's now a days. 8)

 

[maddythebeagle]

I am with DangerMouse and consolidating into wellstradebut still contributing into some....as UM suggested, I have followed and invested in the Moneypaper type stocks....and done well esp. if you send in money to the biggest “dog(s)” of your porffolio….

These work great when you don’t have a lot to invest and can find a group to trade for the first share.…but more are adding fees..with number free trade offers, BOA, Wells, etc., I would do those….

 

[tricky88]

I had several DRiPs going for a while, and there is a very nice community of DRiP investors over here: http://dripinvesting.org/Boards/Boards.asp

Had MO, MRK, some others. But as Computershare bought out Equiserve as tranfer agent for many of the comanies the fees all went up and no longer made it worth my while, so I rolled most of them into my Schwab account. Now I just have JNJ and BAC left as DRiPs. At some point I'll probably move those over as well. I don't need to buy more stock in either of those companies, and the $250 / month I send to each is more out of habit than any kind of well-thought out allocation plan. JNJ's rather low dividend yield hasn't been very impressive, but the BAC one really has. Starting last year it threw off four figures worth of dividend income, which was exciting. Now if I just let it simmer for another 15 years, I think it will just about ready to serve.

 

[flipstress]

I started DRIP plans in 2001--Intel, Pfizer, and Schering Plough. I used Moneypaper to start with these.

I had automatic monthly contributions to INTC but it started charging fees for each transaction so I stopped contributing and just let the dividends be reinvested. Intel has small dividends, so it shows you how I didn't really know what I was doing when I started with these DRIPs. I'll be selling all shares in a few weeks with only a small (I hope) loss.

Still contributing monthly to PFE DRIP, and to SGP when I remember. SGP greatly reduced its dividends after I started the DRIP but it seems that its turnaround is going well. I'll be stopping contributions when I reach my target investment amounts. I'm about even on PFE, up on SGP, but both are small amounts ~3K and 1.5 K.

Won't be starting any more DRIPs because I prefer the ease and immediacy of transactions with an inexpensive broker like Wellstrade.

 

[SingleMomDreamer]

Thanks all for the advice (minus the pee jokes). I'll see how this works out over the course of the next year before making any more decisions on DRiPs. Next year my plan is to get my $3,000 together to start a Vanguard account and begin automatic investments in an index fund. I should have a diversified investment portfolio over the course of the next five years provided I still have this job and catastrophes fall elsewhere...

 

[Milton]

DRIP lacks the flexibility to control the when, what and how much.

* When - I prefer to accumulate my cash and invest only during market setbacks.

This is the flip side of my comment that DRIP / SPPs ingrain the habit of regular investing. I guess it's a matter of perspective.

 

[MooreBonds]

I don't know if it is still the case (since I am no longer in the accumulation phase) but in the 90's I DRIP'd into a number of companies that gave a 5% discount. Along with the no commissions that gave me an immediate and guaranteed return of 5%. Add that to a 3 to 4 % dividend and you are already way ahead of the game. I eventually owned 25 DRIP stocks worth over $250,000. I then moved them all to Buy and Hold Securities. Check them out at:

https://www.buyandhold.com/

Grumpy

The only problem is that (as I found out the hard way), most companies consider the discount they give you to be 'taxable income' (since they deduct it from their corporate taxes as an expense). So, it's not truly 5% discount....5% less your marginal tax rate.

I started with some DRIPs, but now Ameritrade has offered free DRIPs for about 5,000 securities, with fractional shares (they used to only do free drips if your dividends could buy at least one share, and they only bought whole shares). So now I've put most of my non-preferred stocks into DRIP plans with my broker. I figure I'll do a little a la Uncle Mic, let them stew and simmer for 5-7 years, then discontinue the drip and start finding new sources for all the cash to diversify a little more.

 

[Milton]

I started with some DRIPs, but now Ameritrade has offered free DRIPs for about 5,000 securities, with fractional shares (they used to only do free drips if your dividends could buy at least one share, and they only bought whole shares). So now I've put most of my non-preferred stocks into DRIP plans with my broker.

That's a good deal. I guess you have to pay commissions on optional cash purchases, though (i.e., if/when you put new money in)? Still, the convenience of having everything 'under one roof' is certainly worth something.