Nov 232015
 

Discounted Reinvest Plan ?

Normally when we buy a stock we can expect to pay the market price for it. But there’s a guaranteed way to purchase certain stocks at a discount to the market every time. 🙂

This unfair advantage has saved me hundreds of dollars so far!

Stocks that pay dividends often offer a Dividend Re-Investment Plan (DRIP) for its shareholders. I’ve written about how that works in previous posts. It basically means instead of receiving cash distributions, investors can choose to reinvest the dividends by automatically buying more shares or units of the same stock.

Today I will demonstrate this example with one of my holdings, Smart REIT, which I blogged about a couple months ago. Currently Smart REIT (SRU.UN) pays a distribution of $0.1375 per unit every month.

The distribution date for this month was on November 16th. The average TSX market price of SRU.UN over the 10 business days prior to this date was used to determine the DRIP price for existing investors who wish to reinvest their distributions.

The average price of SRU.UN over the 10 trading days preceding the monthly distribution date was about $31.32. This is the market price that most investors would have to pay. However, when my Smart REIT distributions re-invested, I was able to purchase a new unit this month via DRIP for only $30.44, as shown in my portfolio activity below.

15-11-smart-reit-drip-purchase-discount-dividend-plan

$30.44 is 97% of the average price on the market over the 10 business days. 😀 This 3% discount in this cased saved me 88 cents! Wow! ?

DRIP Purchase Discounts

DRIP discounts are very effective at retaining investor loyalty. 🙂

Unitholders who elect to participate (in the DRIP program) will see their monthly cash distributions automatically reinvested in units of SmartREIT at a price equal to 97% of the average TSX market price over the 10 business days preceding the monthly distribution date.” ~Smart REIT’s website.

While everyone else pays the market price to acquire SRU.UN, existing investors who DRIP can pick it up for cheaper. Other companies like Enbridge and Sun Life Financial offer DRIP discounts too. Some REITs such as Allied Properties even offer discounts up to 5% to its investors! Imagine purchasing new shares and units of our favorite companies that we already own, and paying less than market price for it every time with no commissions or fees. 🙂 Great Scott! Over time this should give us a significant leading edge over other investors who don’t DRIP and only purchase stocks at market price.

Most dividend paying stocks in North America do not offer this perk to investors. Luckily my friend Passive Income Earner keeps a list of companies that have a history of offering DRIP discounts.

In summary, this is how to use the DRIP purchase discount.

  1. Find a company that has a DRIP program and offers a purchase discount.
  2. Purchase enough shares or units so you have enough to DRIP at least one whole share or unit. I usually give myself a 10% margin of safety in case the stock price goes up.
  3. Notify your discount broker to enable DRIPs for your newly purchased investment. In my case, I just called and asked to turn on DRIP across my entire account.

That’s pretty much it. ? Just sit back and watch the discounted re-investments supercharge the compound growth in your portfolio!

Disclaimer: I am long every stock mentioned in this post. I don’t give stock buying recommendations to readers. Everything on this page is for information and reference only.

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Random Useless Fact:

The golden eagle is Canada’s largest bird of prey. It can dive at speeds of more than 241 km (150 miles) per hour.

15-11-golden-eagle-fact-largest-bird-of-prey-because-girl

 

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21 Comments on "How to Buy Stocks at a Discount – DRIP – An Unfair Advantage"

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Tawcan
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Tawcan

I love DRIPs. Allows you to dollar cost average and take advantage of the price discount. What’s not to like?

suredividendben
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suredividendben

Very interesting posts, keep up the good work!

Anon
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Anon

I didn’t notice an eagle in that pic. 😐

BeSmartRich
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Haha what a beautiful eagle picture. I can’t take my eyes off the picture. I thought only full DRIP would give discounted price. It is good to know. I am DRIPping on all my stocks in registered accounts that include several names from the listing. I will add more from the listing.

Thanks for sharing!

Cheers,

BSR

anonymous
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anonymous

If you buy through the transfer agent, for full drip you get the discount. Not all brokers honor the discount for their drips. As above TD Waterhouse honors it. Questrade does not honor the discount.

Taking over my portfolio
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Taking over my portfolio

Perfect timing for this article, I was reading an article in the news this week-end and they mentioned DRIPS and I wasn’t sure how they worked, so your article really clear and easy to understand! Thanks Liquid !!

Ben
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Ben

Take a look at DIV.to. Set up a drip a few months ago. Not that this is a reason to buy but it only takes about 335$ to set up a drip and it pays monthly. http://www.theglobeandmail.com/globe-investor/investment-ideas/diversifieds-recent-drop-is-temporary-so-get-in-before-it-bounces-back/article25898992/

My Road to Wealth and Freedom
Guest

Great post Liquid. I’ll be a Dripper until the day I die. Now that there are some headwinds for the economy I’m hoping that more companies, in an effort to conserve cash, will offer better discounts. The banks used to offer 2%.

Anonymous
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Anonymous

Do you DRIP everything in your non registered account as well?

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