Tuesday, September 18, 2012

DRiP, Why You Should Turn Off The Tap

Earlier this year I decided to try my hand at dividend re-investment plans directly through my online broker. They worked pretty slick and the only thing I had to do on my end was call up my broker and tell them which stocks to DRIP. The whole process would take about a week after the dividend payment date to see the extra shares appear in my account. DRIPs are a very efficient way to invest if you don’t have a lot of capital to spend on fees and commissions but that’s not really a concern for me.

What gives?

So why did I decide to stop dripping my dividend shares? For the most part is was just personal preference. I like having the full dividend payment deposited into my account and purchasing shares at the most opportune moment. When using DRIPs you have no control over when the shares are purchased. In fact, a majority of the stocks that I dripped over the 6 month period were purchased at or close to their 52 week highs. Sure most DRIPs allow you to purchase shares with a slight discount, but I’d rather be able to pull the trigger myself. That way I only have myself to blame!

Never surrender

A lot of you may think that I didn’t give it a chance and that 6 months isn’t long enough to see the true benefits. Well you are right. The only problem is that DRIPs are not right for me at this point in my investment timeline. I need to diversify my portfolio some more before I start re-investing in companies I already own. Once my portfolio is established, I may start dripping the All- Stars of my portfolio. Until then, I need more consumer staples in my portfolio so I need to start looking in that sector.

So now what?

For now I plan on sitting on the sidelines and building up my pile of dividends to strike when the time is right. I have my sights set on Saputo as well as a few other grocery chains on my watchlist. Everyone has to eat and brush their teeth, so why not invest in companies that provide these products. I sure wish there were more Canadian companies in the consumer staples sector, so I may have to pick up some U.S stocks in my RRSP account to make up the difference.

What are your thoughts on DRIPs?

This article was written by The Loonie Bin. If you enjoyed this article, please consider subscribing to his feed.

1 comment:

  1. I still prefer to reinvest my dividends automatically. I may not be getting the "ideal" return, but given the modest amounts that I have to work with (I generally invest in $1000 increments, as I manage to free up the cash) the $9.95 fees effectively work out to a 1% cost on a purchase. With the free automatic reinvestments I avoid this.

    Plus I am reminded of a message I've read a few times on various PF websites, "Perfect is the enemy of the good"... If I get too caught up waiting for perfection I'll miss a lot of opportunities to do well. In the case of investing, I am extremely busy most of the day at work so those "perfect" dips, where a stock price drops briefly to allow me to get a higher yield, are hard to respond to. I can't walk away from the middle of working on a senior exec's crashed computer to go check my stock account because I received an alert on my smart phone.

    My main goal for my dividend stocks to to develop a portfolio that will provide nice income in retirement. As of today my intended retirement date is 8,975 days away (yes, I do track that as a reminder that I need to keep my eye on my goal.) Squeezing out an extra fraction of a share today is less important than simply making sure to continue to add to my portfolio at every opportunity.


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