📈📚 Join The Investing Academy ➤ bit.ly/theinvestingacademy Do you have a DRIP set up for your stock dividends? I don't. In this video, I'll explain why I choose to manage my own portfolio dividends, and the pros and cons of Dividend Reinvestment Plans. Hope you enjoy.
Honestly the amount of knowledge and experience you provide to us here is unimaginably valuable and I really thank you for all of it. You changed everything I know about investing.
For me, I’m fully DRIP. I am not aligned with the idea that I can set aside my dividends and more optimally reinvest them in the future. I have contemplated not DRIPing in order to set aside cash to purchase a different (new to me) company’s stock, but it would take too long to buy a significant enough position this way and while I’m waiting I miss out on on the compounding of my DRIP stocks. I can’t get passed that the “waiting for a better opportunity” strategy is market timing for me. I don’t think it’s any different then trying to decide if I should sell MFC to buy more ENB. It’s not for me. I guess it’s partly that, in my experience, the type of blue chip companies that I hold tend to move in similar trends. They go up and down with the market (I mean - they kind of are “the market”) so, trying to predict how one of them might behave differently is too risky, relative to the potential reward. But, I agree, it’s no fun to get my BNS DRIPed shares and then watch BNS sell off - but I don’t think I can predict when that will, or will not, happen.
Hi mark, one major pro for using drip that I think you missed ( unless I missed you mentioning it) is the drip discounts. I've had some major discounts over the years... Less so now. FTS offers 2% right now, aqn 3%, TD 2% and so forth. A lot of companies have also cancelled the discount, but Ill take the extra discount when they are already undervalued 😎 I personally follow a similar strategy to what has been mentioned. I use drip on undervalued positions to avoid any extra costs. With overvalued positions, I redeploy those dividends into better valued and underweight positions after accumulation of at least $1k so I don't have a large cost basis. That is one reason I moved a hunk of our TFSA into Wealthsimple. It always allows us to be fully invested with fractional shares.
Thanks for that reminder, yes. Another viewer brought that up as well. As you say, that discount offer isn't as prevalent as it once was, but for those companies that you did mention (and others that still offer it) it's no doubt a benefit to capture that extra discount. Thanks again! - Marc
Certain stocks I have a drip set up on. Like Enbridge and Manulife. Typically those stocks don’t go up a huge amount, and are more so a dividend growth strategy. So a drip makes more sense.
If a company offers a share price discount if you DRIP and you set up the DRIP with your broker, do you still get the discount? Or do you have to set it up with the company? Thank you.
I'm more hybrid with the drip. When we are in a bear market like we are now, I prefer having the drip on since most of my stocks are in undervalued territory and it saves me on fees. In a bull market, I'll definitely remove the drip.
I don't know if this is common, but TD has been offering a 2% discount on their own stock prices purchased through DRIP for the past 2 dividend payments... that's an automatic return of 2% which is welcome.
@@donyaschuk6538 Yeah, and TD announced that there will be another 2% DRIP discount at the Jan 31 2023 payment. This discount alone is worth doing DRIP imo... unless you no longer want to invest in that stock
Marc you make some very valid points. When I started investing I turned DRIP on so that I would get full benefit in the companies that I already had checked out and felt strongly about. I might turn it off later on but time will tell
100% agree with you. I put cash monthly in my account and I decide what I do with this money but the money from the dividend, they go for DRIP. I don't think you can for 100% be sure that a stock is under/overvalued (otherwise I would be billionaire)
I'm not using DRIP either. Mainly because I'm an active investor and I like to decide where to re-invest my dividends for maximum gain. For Passive Investing, the DRIP is the way to go, thus giving you a hands-off approach to investing.
Great video as always Marc... I take a similar approach to yours', but not quite to the same degree. I turn on and off my dividend re-investment based on where the stock is trading in relation to my intrinsic value. If say the name is trading at least 15% below my intrinsic value, I'll go ahead and let the dividend reinvest. Otherwise, I'll take the cash and find a better alternative to deploy the money into. I'm not adverse to holding the cash in instances when I'm unable to find any good values to buy. Yes... I do time the market. Cheers my friend...
Not surprised that you've got a strategy for this. Thanks for sharing with the community, Scott. Cheers to you too, and all the best as we wind up 2022. - Marc
Yes, I started out with Drips for some of the reasons you mentioned. Over time I evolved to understanding more about indicators on stock charts and when to notice a stock is in a pull back mode. This meant I decided to stop the drips, also because most showed gains due to holding them on for so long i.e. the prices had risen. Now I let it accumulate as cash, only a drip if it shows a considerable low prices due to pullback or bad company news. It is nice to see the money as cash come in mostly monthly. Thank you Marc! Great topic👍💯🇨🇦
#7. I already vetted these businesses( wrongly or rightly) so why not buy more with no commission? Except it’s fun to buy the stock and hit the buy button. And I’d rather choose myself… there might be something I think is better. Like, when the CP Kansas deal finally goes through I’ll want to switch out those CNR stocks for CP.
I try to remove the human factor (no timing) and spend the least amount of time on analysis (but I do my research). I don't have DRIP on Wealthsimple, but I do reinvest as low as 1$ of dividends for the stocks I can buy fraction of. I now buy the same ETFs, stocks, bonds, gold and silver every two weeks. ZSP, VUN, XIC, VDY, XEF, ZAG, VSC, CGL.C, SVR.C, Bell, Enbridge and Alberstein. But I have a bunch of stock I bought when I first started investing on my own and I' keeping them. I have a large position of IAG and for the first time I'm not reinvesting the December dividend as it seems high and I'm starting to know that particular stock. But I could be wrong and missing out opportunities.
Can you do a video on investing for semi/retired 55+? Husb and I sold our sml biz and house (at top) now renting. For health I had to semi retire but ironically he’s older and now consults after saying he wanted to slow down. Once bitten? 😂 Maybe like many our age we have a great advisor (not the bank) and I like to stay informed. We wonder if we can/should handle half ourselves. Age diff and risk level divides us. I’m OK with more risk. We know other couples the same. Great info thx.
I think drip is bad. I prefer to funnel all dividends to whatever i think is a good pick at the time. Otherwise i would buy stuff at prices i dont like constantly and that would be very annoying. Im the active kind managing my portfolio, passive is not for me
Sounds like we're on the same page, Eliot. As I expressed in the video, I do feel the DRIP is suitable for some, not for others. Thanks for watching. - Marc
Can you deep dive into the taxation part for the dividends earned? Are dividends taxed in Canada in the TFSA/RRSP account or the regular trading account?
No, just like capital gains, there are no taxes on dividends received in a TFSA or an RSP. Of course, in the case of an RSP, the withdrawals are taxed as income and do not benefit from the eligible dividend tax treatment in a non-registered account. Also, US dividends received in a TFSA (but not an RSP) are subject to the 15% withholding tax from the IRS but that does not affect Canadian taxation as you are receiving the dividends net of the withholding tax into a tax free / tax deferred account.
Mark I appreciate your time for making this video, I am a new investor (3years), I do use a drip and honestly my reason is to accumulate a set amount of shares in said companies. Once I do the drip will be shut off and dividend will be put into another stock/etf/reit
When you set up a DRIP, is there a delay between the dividend date and the date the broker actually buys the stocks ? If there is a 7 day delay, and the market goes down, would’nt it better to chose to buy sooner ?
Sure, but that delay can result in reinvesting at higher OR lower prices so it can work in your favour, or not. Also, bear in mind that sometimes the “delay” is the brokerage buying the stocks for the reinvestment (a so-called synthetic DRIP) and they use the average cost over several trading days to determine the average price for all. That average will smooth out the reinvestment price but yes, sometimes the average is higher or lower than the opening price the day you receive the shares.
In most cases, yes there is a delay before the dividend is posted to your account. As James noted below though, in that short time period, might work out for or against you. Thanks for asking. - Marc
IMO, at age 60, you likely need at least some of your investments to last 25-30 years, and maybe beyond, so there is a long term component. Consider at age 35 you had 25 years to go to get to age 60. One way to balance risk is to shift a percentage of your portfolio to less volatile investments. With GICs now approaching 5% it’s possible to allocate your required income for a few years in low risk investments which reduce your overall risk. Each year you cash some GICs for spending and sell some higher risk investments too”reload” your GICs while retaining a reasonable proportion of your portfolio for growth. Keep in mind that even at 5% you may not keep pace with inflation but you are also not taking on any risk beyond that for your shorter term strategy.
Hey John. Not all all. Given your life expectancy (absent some known issues) you have a 15 to 25 years or so ahead of you as an investor. That's the investment horizon I'd use. Thanks for asking. - Marc
There was one PRO reason completely missed with DRIP. Some companies (this is not a rule but it happens) have a bonus share portion for DRIP. Meaning they give you percentage discount when you're buying a share via DRIP and not via order. So you can get easily 15% discount on proce for the share you just bought compared to putting up an order.
Thanks for mentioning that, Oscar. Used to be much more common, but like you say, there will still be opportunities to get this advantage. Cheers. - Marc
Surprised that you haven’t mentioned tax complications - especially if the institution doesn’t properly track you average cost base. Drips are on for registered accounts unless you want to have to track all of this manually. Most financial institutions mess up the ACB !
I regularly dollar cost average into VFV, and VDY. DRIP is always on for me, since I have no individual stocks to allocate dividends into. As hands off as it gets. Sit back, and watch the snowball grow. I can see why a stock pickers would prefer allocating the distributions to specific holdings based on what’s on sale.
I use DRIP currently, and have for some time. I offset the potential of overweight in a company or sector by using new deposits/contributions to buy into other companies or sectors that I believe are either undervalued or necessary to avoid over concentration, which is easy to do if you have a Canadian heavy portfolio of dividend stocks.
Very good information! I will surely consider this when my situation changes... but with Questrade's 5$ fees, small positions and a sub 40k portfolio, unless everything is pooled into a single position and complemented by extra deposits, the fees just kill the benefits. With most stocks being down right now, income savings going mostly to HISA (ARM, recession safety net, etc), letting DRIP do the DCA work across the board seems like a no brainer. But again, very good points on when shifting to a more active strategy would make more sense. Thanks!
I would call myself a new investor i.e. 15 years. I have never done a drip for many of the same reasons. I love how you present the information. It really feels similar to how my brain works and my style of investing. Thanks.
Thanks for your comment. We've discussed rebalancing over a number of previous videos, but haven't really dedicated one specifically to this topic. Great idea for a future video, so I'll add that to the list! Thanks a ton. - Marc
You are using historical graphs and pretending you would know what would happen. Neither of us do. You wait to buy at a discount and then the price goes up instead. Automatic purchasing seems to ensure forward cost averaging?
Hey Brent. Just to note here, the point of this strategy isn't to pretend you know what will happen next, because you can never know that. It's to make a decision based on the situation on the date the dividends are paid. On every dividend payment date you have full transparency of what prices, valuation metrics, etc. are that very day and you can allocate the flow to what you believe is the most advantageous position. That is an informed decision, not a guess of what's going to happen tomorrow. We might disagree on this point, but even if we do, I appreciate you watching and taking the time to share your thoughts. - Marc
My wife and I are going to start Questrade accounts in the new year. I agree completely with this video. we will start by buying high yield shares to start but only so we can use it to finance more secure long term stocks. I'm 49 and have nothing saved for retirement and need to take the lead out and go aggressive for a bit for the head start. I will need the dividend income to support myself later on.
great video Marc. very knowledgeable. and very appreciated. ive learnt so much from both of you over the years of watching you. i have "Smashed" every like button on your videos.
Great topic Marc, I enjoyed it a lot. I find DRIP works well with ETFs, especially if your broker's commission charges are relatively high compared to the rest of the industry.
Hi Marc, a very good video like always. I don't automatically DRIP my dividends cause for me it's better choose a company with a good moment, I mean, a value stock that recently dropped, for example V "Hola Marc, muy buen video como siempre. No hago DRIP automáticamente con mis dividendos porque para mí es mejor elegir una empresa con un buen momento, es decir, una acción de valor que cayó recientemente, por ejemplo V"
I guess that’s why it’s called direct investing , taking control of your and my investments , not worrying about capital appreciation, staying the course ..great videos guys 😊
I don't use DRIPs because I'm lazy although I do agree with most of your ideas. I don't want to have to manually update my ACB every quarter. Marc, is there a software program available to retail customers that keeps track of ACB and possibly your dividends as well?
Hi Ryan. Thanks for sharing your thoughts on DRIPs. As for a software program, I'm not aware of any that would do what you want, but maybe some of our viewers might be able to point you in that direction? Anyone else aware of something like what Ryan is asking? Thanks all. - Marc
@@beaviswealth Thanks for trying to answer my question. I guess "big accountants" and the computer industry are in collaboration to make sure we investors are either miserable trying to keeping track of ACB or have to rely on accountants to figure this out. All kidding aside, I really thought there had to have been an easier way out there that I wasn't aware of but I guess we all have to either suffer manually, blindly trust your brokerage statement, which can be wrong, or pay an accountant.
Ya, it's a bit of a rock and a hard place. I've often thought that having a simpler tax system would be great, but I know that's a pipe dream. We soldier forward. - Marc
Well the pro for me using a drip is the simple fact that since I inherited a portfolio with IG and they charge $50 per trade, it just makes sense for me. These are long hold blue chip holds for me but I understand your view completely Marc.
You have the ability to transfer the contents of that IG portfolio to any other brokerage, usually at no cost, as the receiving brokerage will almost certainly pay your fees. But, as a POW investor, I hope you don’t 😉. Just kidding, you should definitely explore your options and make sure you take every opportunity to reduce your fees.
LOL what a joke. All the points you made against DRIP are basically about timing the market, which is impossible to do over long term. If I knew, MSFT was gonna tank and Energy sector was gonna explode in 2022, I would have sold everything and got a big loan and poured it all into Cenovus lmao
Hi John. Not sure if you watched the whole video, but if you did, you missed the point. I didn't say you'd go out and sell everything, but something else, and flip back and forth. That would be crazy. I did say that you could reallocate dividend payments, however. On every single dividend payment date, you have full transparency of what prices are that day, valuation metrics, etc. and you can allocate the flow to the most advantageous position, ON THAT DAY. That is a very educated decision, not a guess of what's going to happen tomorrow. Thanks for watching, and although we disagree on the premise, I welcome your input. - Marc
Personally I use a DRIP because I feel my account is relatively small and $5 commission on every trade hurts for these small transactions. ETFs have significantly smaller fees so I plan on turning the drips off for them at some point, but dripping equities makes sense for me.
@@darrelgrove5304 In Canada we have Wealthsimple for free trades, but they don't let me trade options and covered calls are part of my overall strategy so I have to deal with the fees.
Very interesting perspective. I've always believed in DRIPs, but you made me doubt about my belief. It's true that DRIPs can hurt your returns if it buys a declining share when you could buy other stocks for a better value instead.
Watched and liked, thanks Marc! I use DRIP and DCA. I'm mostly an income dividend/covered call ETF cash flow type investor, but don't currently use the funds. Any excess amounts that don't DRIP I just keep as cash in portfolio and grow that position to use in times of correction.
Good video. The only thing I think that was not considered is the cost of making a trade. Not having a drop only makes sense for me if I am looking to reinvest into an ETF as the fees are nearly non existent on QT. However if your Dividends are on the smaller side eg $100 then paying a $5 transaction fee is automatically losing you 5%. You could let your cash sit however but then it is not working for you. I guess the only other alternative would be to invest into an etf until you got to a $ figure that made send and sell then reinvest that into a stock div. This would only make sense if you were in a TSFA or RRSP where you dont have those realized gains right away. Would love to hear what you think about my perspective.
If you don’t need the dividends to live, why buy a dividend paying stock in the first place? Wouldn’t it be better to buy a high quality non-dividend paying stock instead? Dividends put a negative pressure on stock prices and are a financial burden to the company.
Thanks for commenting, Tanah. I fundamentally disagree with a blanket statement regarding dividends in general. There are nuances, for sure, but I don't agree that dividends are bad in all cases. That said, appreciate your viewpoint. - Marc
