DRiPs?

[mangodance]

How many of you are really using DRiPs for part of your ER strategy?

 

[preben]

I don't - and never really understood the attraction considering the price of a discount broker commission these days + all the hasle with account keeping/tax papers Etc. that drips bring.

Before cheap brokers and when the companies involved gave DISCOUNTS on the price (and had no fees to do the drips) I could see the attraction - not anymore though - drips seems a bit stone age (to ME) now.

If I had drips now I would only keep the ones giving discounts on purchase + no fees to purchase and dump the rest into an ETF or fund of my liking.

If commissions is a problem just use fund company instead or take a look at www.interactivebrokers.com or www.lowtrades.com

Cheers!

Cheers!

 

[unclemick]

Yep Ben

I'm afraid you're right. ER'd with 300k in financial assets in 1993 - scrapping $50, $ 100 here and there into several DRIP's over the year was a big deal. Now with a bigger asset reserve - ballpark 1 mil. - DRIP's are getting to pain in the butt status - but my two file cabinets (47 DRIP files) have a certain nostalga value.

And it's amazing what a coupla bucks here and there with div.'s reinvested adds up to as an income stream after 12 plus years - even taking out a lot as spin off, cash merger money.

Keep thinking about cutting back - maybe this year

 

[wildcat]

Plus with a Vanguard brokerage account one can reinvest all dividends to buy additional shares at no cost. To me that is even better b/c less hassle and it can be any company that pays a dividend, not just the ones that have DRIP offerings.

 

[Bookm]

I agree with the ben and unclemick. I began DRIPing several years ago (had it checked tho   ) consistently added to it every month, then every quarter and stopped contributing 2 years ago. They are great for the small investor who has the time/inclination to DRIP into several stocks and research and then monitor several stocks at a time. I've decrease my individual stock holdings and concentrate on funds now, as my time has been compressed a bit with family and home ownership duties. 

Now I just let my dividends buy new shares every quarter, and concentrate on contributing to a Roth and in a few weeks an account at Sharebuilder, which lets you buy stocks and ETF's for $4 per trade. I'm only opening this account because Costco executive members can get $75 added when they open a new account there. I'm getting a little bonus soon, and thought it wouldn't hurt  to add the two sums together, split it up into two buys to get them to give me $75.

But back to the topic,   for all the paperwork involved (sooner or later), I decided it wasn't worth the extra hassle, IMHO.

Bookm

 

[Yipee-Ki-O]

I've acquired stock in 27 companies via DRIP's over the past 10 to 15 years. Those companies now make up the bulk of my taxable accounts portfolio. I used an individual membership in NAIC and a subscription to The Moneypaper to set up the accounts and then made quarterly cash contributions. While more paperwork is required with a DRIP account versus a mutual fund, I never found it to be overwhelming. All you really need to save is the last statement of the year. I found it to be an easy way to DCA into individual stocks. As far as picking stocks, I just used Mergent's Dividend Achievers as my guide. Were I trying to amass a portfolio today, I'd probably pick from among the top 25 to 50 companies in DVY and add some REIT's. Obviously, you kind of have to enjoy the whole process, which I did. If not, you'd be much better off sticking with mutual funds.

 

[unclemick]

Hmmm

So now there are two of us - except for the membership in NAIC.

Got my recent Moneypaper yesterday and my annual (now $45 bucks) order of summer 2005, Mergent's Dividend Achievers last week.

 

[eyetri2]

First time poster, half way through the reading of this forum. It is nice to finally find some sound financial people and the rationale for people doing it. Of course my situation is a little different and probably best for a different heading, but I will answer this question first.

When we say DRIPs, is it buying stock from the directly company or is it just reinvesting dividends? When I was younger, I am 29 now, I did HD DRIP. Still have it and have not done anything with it because the fees are ridiculous, good at the time, but ridiculous now. So, yes, I agree with you all - traditional DRIPping is a pain.

However, like someone else using sharebuilder, I use foliofn (no plug, I think just better). I can trade nearly infinitely every month for a set price, $4 real time trades, have access to some mutual funds and do reinvest the dividends in all the stocks of my core portfolio. As of right now, on my cost basis, I have a 4.75% yield over 18 stocks ( only 1 of them a REIT). My goal, like someone from one of the other threads way back when (the person mentioned the author David Foster), the goal is to live off the dividends and not touch the principle. For now, unfortunately, still working.

eyetri2

 

[MooreBonds]

I seem to have a new "annual investment focus" each year. This year it's a combination between DRIPs and foreign ETFs. My current DRIP portfolios account for 6.8% of my total equity investment portfolio, or 5.4% of my total net worth.

I prefer the DRIPs that give you a discount, but also included a few that have relatively higher divies. Here is my current list:
CLP
LXP
HCN
OHI
PLD
FCF
PGN
AEE
BKH
HD
COP

Above are yielding 4.62% off of current price (5.02% off of cost-basis).
I plan on adding Bank of America, Wells Fargo, and US Bancorp sometime this month.

CLP through FCF give you a discount on reinvested dividends; some also give you a discount on initial purchases (which you may be able to do on-line for free). Try a few different transfer agents, which allow you to search different companies based on discounts they offer, company-paid transaction fees, etc.:

Equiserve
www.equiserve.com

Mellon Investor Services
http://www.melloninvestor.com/newmisweb/investors/investment.asp

Bank of New York
https://www.stockbny.com/default.asp

Wells Fargo
http://www.shareowneronline.com/

Anyone else have some good DRIP picks?

 

[yakers]

Well DRIPs are part of my plan. I have 6 and I add a little mostly monthly. Five of them have no fees at all and one has a very small fee. They have done very well for me. I keep all the monthly records but I do not see a problem at sales time as I expect to sell all my shares in one stock at one time. So calculating my cost basis should be easy enough, just simple addition and subtaction.
The reason DRIPs work for me is that I do not have a chunk of money to play with, just regular paychecks with little investments. I do believe my costs and fees are lower than any mutual fund. Another good thing is that I know something about the six companies, it is not too many to follow."Buy what you know" is working for me. And having DRIPs keeps me from worrying as the stocks go up and down daily.  Now if I had a lot of money to invest I would probably not DRIP.
I do expect a pension, have regular and Roth IRAs and some ibonds, its good to have a diversified range of funds and DRIPS do this for me.
I am setting up a DRIP for my 3 month old grandaughter, this could be a great use of DRIPs.

 

[KB]

I've been buying Drips for the past 10 or so years and plan on getting more involved in a few months. I liquidated all my Drip stocks last year to pay cash for my house so I need to rebuild. It's more of a hobby for me than a huge money maker.

 

[grumpy]

Starting in 1995 I built a portfolio of 25 DRIP stocks. In 2001 I transferred them all to Buy and Hold Securities

http://www.buyandhold.com

This brokerage charges $15/mo. for unlimited trades and will reinvest dividends at no cost. You can only place market orders and the orders are only executed at three specified times during the day. You can also opt for a pricing plan of $8/mo. which includeds two free trades. Additional trades are $2.99 each. Minimum investment is $50. They also allow IRA accounts.

This has been a much better solution for me than dealing with 8 different transfer agents and having to write checks and mail them.

With Buy and Hold I can watch the prices of the stocks I follow and if one dips I submit my order a few minutes before the trading window time. It is a lot closer to real time trading than a traditional DRIP.

I have posted a list of my dividend paying stocks in other previous threads. Collectively they have a current yield of 3.52% and a yield on my purchase price of 4.96%.

Grumpy

 

[wildcat]

Agree and reco the same idea. I would opt for a brokerage account that allow you to buy and reinvest divis over buying directly from the companies in DRIP accounts.

 

[Nords]

Agree and reco the same idea.  I would opt for a brokerage account that allow you to buy and reinvest divis over buying directly from the companies in DRIP accounts.

Fidelity.

 

[maddythebeagle]

I have several drip holdings and dont find the records to be a burden and there are several plans that cut down on paperwork as well as quick ways to consolidate records. I use auto. bill pay to make optional cash payments and use several fee free plans. I also have traded first shares with others and found it to be the lowest fees for my investments. I also like the opp. to dollar cost average. and send in a little more when the market is pushing a stock down. as well as build a diverse portfolio.

 

[mikew]

I am hunting for tax minimizing investments (ineligible for IRA due to expat exemption). I am still studying but it seems the tax deferral from dividend reinvestment through a broker (thanks for the information wildcat) maybe part of the strategy. I am thinking of buying about 10 different stocks and adding about 5 per year. More volatility and risk than an index fund but I hope it will even out once I get to a cruising altitude.

I am new to this tax minimization stuff and am definately not enjoying the experience.

 

[preben]

Certainly not an expert in US tax but have never heard of the tax deferral just because the broker re-invests the dividends? In my case (non-resident alien) they withheld the tax prior doing the re-investment. Since then; they stopped comletely accepting re-investment from us aliens, probably to ensure correct taxes collected. Cheers!

I am hunting for tax minimizing investments (ineligible for IRA due to expat exemption). I am still studying but it seems the tax deferral from dividend reinvestment through a broker (thanks for the information wildcat) maybe part of the strategy. I am thinking of buying about 10 different stocks and adding about 5 per year. More volatility and risk than an index fund but I hope it will even out once I get to a cruising altitude.

I am new to this tax minimization stuff and am definately not enjoying the experience.

 

[mikew]

I am certainly not an expert either. Still trying to feel my way through this. But in the book I'm reading Beating the S&P with Dividends from Mergent that's what it says. (I hope it is right because it is about the only interesting thing in the book). I will check it out further. I will also check to see if my broker will allow nonresidents to reinvest dividends.

As I said I am not enjoying learning about taxes.

Mike

 

[preben]

They for sure tax non-resident aliens (foreign withholding tax of 15-30% of dividends) up front whether set for re-investment or not.

As to stopping doing re-investment for non-resident aliens that is each brokers own choice but for practical purposes I can see that it makes sense for them. Initially that annoyed me - but now that I am in the distribution phase it actually is rather useful as I get the steady stream of income without having to pay any commissions.

Cheers!

 

[mikew]

I know what you mean. I am planning on opening an account for my alien wife (I am not sure but I think she's from one of the moons around saturn ). I think I will only hold things subject to capital gains tax in there.

I don't quite understand tax especially the international taxes yet. My main tax strategy is to pretend I am invisible.

But that is interesting information on the distribution phase.

Mike

 

[bpp]

Hi Mike,

(ineligible for IRA due to expat exemption)

Did you mention that you take occasional business trips to the US? If so, any income earned while physically in the US counts as US-sourced income, falls outside of the FEIE, and can thus be put towards an IRA (subject to all the other rules and limits). I used this trick to partially fund an IRA last year and this year.

(Most years I don't have any business trips to the US, so it's a strategy of fairly limited use for me, but every little bit helps, right?)

Bpp

 

[mikew]

Good idea, Bpp

I should have opportunities to go overseas a couple months a year, starting in two years.

BTW, I checked with Schwab, they won't let nonresidents hold onshore open funds. TD Waterhouse will allow it, if I open the account with a US address. But they won't let my Japanese wife have an account, if something happens to me. There is probably a way around that but my wife wouldn't go for anything creative.

I am considering forgetting about open funds and only using ETFs and closed funds. Something of a loss but not the end of the world. And it would make things simpler.

Mike

 

[bpp]

TD Waterhouse will allow it, if I open the account with a US address.

They must have changed their rules. They have let me open accounts without a US address, and buy funds within them. I opened my first account with them in 2000, so things may well have changed since then, but then again I opened my IRA account with them just a few months ago, again using only my Japanese address... Well, maybe they let it slide since they already had the earlier account open for me.

But they won't let my Japanese wife have an account, if something happens to me. There is probably a way around that but my wife wouldn't go for anything creative.

I don't blame her, I wouldn't, either. Come to think if it, I listed my Japanese wife as beneficiary if I die on my accounts... If TDW is going to give her a hassle about it if I die, I may have to worry about asset location issues a bit more. Did TDW say they wouldn't give your wife access to the money in the account at all? Or just that they would insist on liquidating everything first before writing a check for the proceeds to her? The latter, while annoying, I could at least deal with.

I am considering forgetting about open funds and only using ETFs and closed funds. Something of a loss but not the end of the world. And it would make things simpler.

I have actually moved towards an almost all-ETF (and individual securities) portfolio over time myself, largely for the cost savings. The only two open-ended funds that I still hold are EGLRX (Alpine International Real Estate) and PCRIX (Pimco Commodity), but it wouldn't be a terrible disaster if I were no longer allowed to do so.

Bpp

 

[mikew]

I don't blame her, I wouldn't, either.  Come to think if it, I listed my Japanese wife as beneficiary if I die on my accounts...  If TDW is going to give her a hassle about it if I die, I may have to worry about asset location issues a bit more.  Did TDW say they wouldn't give your wife access to the money in the account at all?  Or just that they would insist on liquidating everything first before writing a check for the proceeds to her?  The latter, while annoying, I could at least deal with.

The guy at TDW just said she could not hold the funds as a nonresident. He said she could open an account and hold the funds, if she had an SS number and a us address. But that would mean she would be saying she was a US resident for taxes. I think that is starting to get creative. I don't think he really knew entirely what he was talking about.

TDW opened an offshore discount broker in Luxemburg. That maybe the reason for the change.
http://www.internaxx.lu/

I am in the process of moving my savings onshore. I am thinking, I am going to go with Schwab Global. Here, if something happens, just slide the funds over into her account.
http://www.schwab-global.com
They seem to have some good services for nonresidents and nonresident aliens.
They also have Japanese language services although the Japanese speaker I talked to was a Chinese woman.  Also, everytime I call at 3 am. I get the same grumpy chinese guy.

 

[Martha]

Mikew, here is the irs publication that talks about taxation of dividends. http://www.irs.gov/pub/irs-pdf/p550.pdf It addresses drips on page 21. Ben is right that you will have to pay taxes on them immediately even though the dividends are used to buy stock.


On the otherhand, if a company distributes its stock itself as a dividend, then no tax until the stock is sold.