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.

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Feb 212015
 

Last month I blogged about investing in German real estate through a Canadian REIT called Dream Global. I chose this investment for its strong foothold in the European economy and for the consistent high yield. Normally dividends from foreign investments are taxed. However because I’ve bought DRG.UN in my Tax Free Savings Account it wasn’t really clear what would happen. Well yesterday I received new confirmation in my brokerage account so I thought I’d post an update. Thanks for the reminder, Bricks. 🙂

Each Dream Global unit currently pays out $0.066667 per month. Since I purchased 180 shares in January I received $12 in distributions this month. As it turns out there doesn’t seem to be any withholding tax on these payments. 🙂 Below is a history of my TFSA transactions for 2015 so far. As we can see near the end of January I initiated a buy order for Dream Global REIT. And then on Feb 13th, when the company paid its investors, I received $12.00 in my account. 😀

15-02-dream-global-purchase-drip

If there had been any foreign with-holding tax it would have been deducted from my account on the same day as I received the DRG.UN distribution. For those who are curious, The abbreviation “TXPDDV” is simply TD’s transaction code used to describe money earned from a combination of different sources including dividend, interest, foreign dividend, capital gains, or return of capital. This is an administrative code used for tax purposes on a T3. In an unregistered account this “TXPDDV” designation means that tax factors have not yet been applied and is frequently misinterpreted as an indication that tax has already been paid. However in a registered account, such as a TFSA or RRSP, there are no T3 tax slips associated with these types of distributions. I called TD Direct Investing earlier today to confirm and that’s what one of their associates told me. So yay. 🙂 I should have invested in this company sooner. 8.7% annual yield on DRG.UN and no tax!

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Feb 282014
 

Absolutely incredible month for stocks in February. Most companies beat the street’s earnings expectations 😉 Furthermore, one of my favorite companies, TD, did a 1:2 stock split and raised its dividends! I also had quite a lot of DRIPs this month 🙂 #Score!

The title in today’s post isn’t just a reference to Bloodhound Gang’s catchy song 😉 DRIPs are super useful, and one of my favorite investing tools as a dividend investors. Dividend Re-Investment Plan (DRIP) means automating the process of using newly acquired dividends to purchase as many new shares as possible so the investment can snowball for maximum affect. For example, in the summer of 2011 I purchased 139 shares of Intel stocks for $3,000 and blogged about why I made that investment. But today, I have 149 shares of Intel. Where did the extra 10 shares come from? DRIPs of course! 😀

Every 3 months I acquire a new Intel share. Setting up a DRIP is easy and free 🙂 It’s been 10 quarters since I bought INTC, so that’s how I got my 10 extra shares, for free!

Since I purchased Intel the dividend was raised a couple of times from 18.12 cents/share to 22.50 cents now. That’s a 24% dividend hike over that 2.5 year period! #PassiveIncomeWin 🙂 If you followed my strategy and also bought Intel back in 2011, then I hope you are as happy with your investment as I am 🙂

Here’s a look at DRIPs in action inside my RRSP trading account ^_-

14-02-dripsintel DRIP

In 2011 Intel paid me ($0.1812 x 139 shares x 4 quarters) = $100/year
But today Intel pays me ($0.2250 x 149 shares x 4 quarters) = $134/year 😀

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Jun 282011
 

The dividend reinvestment plan (drip) offered at most brokers is a tool for investors, it takes company dividends paid to shareholders and automatically buys more shares for them. For example if today you bought 100 shares of Bank of America for $10 per share, you would have 100 x $10 = $1000 worth of stocks in BoA. This means your ACB is $1000. Then let’s say they offered a special dividend of 10 cents per share to shareholders. Since you own 100 shares, you would get $10. This money would then buy you exactly 1 more share of the company, assuming it’s share price is still $10. Congrats, now you have 101 shares at $10 each, so your portfolio is now worth 101 x $10 = $1010.

But wait, if these stocks are held in a non-registered account please don’t forget to adjust your ACB. You should recalculate your ACB as if the share(s) bought with the DRIP was using your own money. In this example, think of it like you bought 1 more share using $10 from your pocket on the same day you received the dividend. So your ACB is now $1010.

Which means if you sold all our holdings, 101 shares. You don’t have to pay any taxes at all, even though it appears like you made $10 in profit, or a 1% return. You already paid taxes on the $10 dividend, don’t make the mistake of paying another tax on a $10 capital gain. Some investors overlook this small detail and pay double tax; once when they receive the dividend, and once more when they sell the equity. Luckily most discount brokerages will do the math for you and adjust your ACB so you don’t have to. If this sounds like too much information then consider only DRIP your RRSP and TFSA accounts, or other tax deferred vehicles like the 401K in the US.

For simplicity’s sake I’ve left out commission fees and any tax liabilities in the above example.