Posted by RycePapers | Filed under RycePapers
Not when your tap won’t turn off, but Dividend Reinvestment Plans. Talking investments with a friend I mentioned my RRSP rose double digits since November. How, she asked. Most of my stocks are eligible for dividend reinvestment. It is kind of a couch potato investing method for me. Here’s how it works.
After the scare of 2008/9 when my RRSP declined about 40%, I aggressively moved to stacking my portfolio with blue chip, more secure, stocks. Most of them offered a plan where my dividends purchased more shares, rather than being paid in cash. Think of companies like TransCanada Pipeline, Potash, Suncor, Loblaws, or the banks.
For example, I own Scotiabank shares. Instead of obtaining a dividend every 3 months for each share I own, my account automatically buys more shares and, get this, Scotiabank gives a 2% discount on the average market price. Here is more information about the plan.
In 2010 BNS (the stock symbol) paid 49 cents every 3 months for every share. Now they pay 60 cents. That is a 22% increase in the dividend paid. Fantastic. Each quarter whatever dividend money I receive is used to buy more shares, whether the price of the shares is up or down. This is a version of dollar cost averaging. Instead of trying to pick the right time to buy, you buy consistently and ‘average’ out your price.
I’ve owned BNS shares since the 1990s and began the DRIP in 1994 when the dividend was 29 cents a share. Drip, drip, drip my shares increased. Researching this blog I realized next year will be the 20 year mark for this plan. Time flies!
In 1998 the shares split 2 for 1 and in 2004 they split again, 2 for 1. Of course, they cut the dividend in half with each of these splits. In 1998 the price was $66.25 before the split. In 2004 it was $70.90 and today’s price is about $58 and reached over $61 this year.
If you google dividend reinvestment plans you’ll find lots of information about the companies that offer these excellent investment programs. Here is a site to get you started. http://www.dripinvesting.org/
Investing is for the long run and these DRIP programs keep me from accumulating bits of cash in my account. What am I going to do with $313 from Manulife? That dividend bought 20 shares, automatically, without me even having to lift a finger. Acquiring more shares without paying a commission or transaction cost is another benefit of DRIP investing. DRIPs are glad to give you a systematic method of acquiring more shares, and these shares in turn pay you more dividends.
My DRIP with Scotiabank began with 49 shares. You can buy a very small number of shares and begin this type of investing. It made me invest for the long run and that proved to be a smart investing strategy.
That is what’s on my mind today, what do you think?