Discounted Reinvest Plan 👌
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.
Normally when we buy an investment 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 price every time.
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.
$30.44 is 97% of the average price on the market over the 10 business days. 😀 This 3% discount is the bee’s knees and 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.