03-15-2020, 01:13 PM
(This post was last modified: 03-15-2020, 01:16 PM by Dividend Watcher.)
smullen,
Congratulations on setting up your DRIPs.
I don't know exactly how your brokerage works but this is how mine, TDAmeritrade, handles DRIPs.
First, it depends on when the company paying the dividend actually transfers the money to their shareholders. Some credit the dividend before or at the market's open, 09:30am EST/DST. Some effect the transfer of the money during the trading day and some do it at the time of the official close of the trading day, 4:00pm EST/DST. Obviously, your broker can't use this dividend money to purchase more shares for your account until it has the money to do so. It's not a charity.
Secondly, the broker determines how much of this dividend money it has to spend to purchase more shares. If only half their customers wish to reinvest, then 50% of the dividend payment is allocated to the reinvestment process. Of course, it knows this beforehand. That is why TDAmeritrade requires you to identify the companies you wish to reinvest before the ex-dividend date which is some days the issuing company specifies before the dividend is to be paid.
It then places a market order for that amount. I'm not sure how they specifically execute that trade but obviously a trade worth potentially millions of dollars is not going to execute all at once without significantly affecting the share price. The "market makers", those firms that are supposed to ensure fair and orderly trading, will assign shares to that order as they are available at whatever price they can agree on. For stocks listed on the NASDAQ exchange, this is done by computer rather than market makers (MSFT comes to mind here). Your broker may actually purchase 10,000 shares at one price, another 2,000 at another price, et cetera. At the end of this, the broker determines what the average price per share this total dividend amount produced and allocates that to each account based on your percentage of the entire amount. In essence (and in simple numbers), if you were to receive $10 in dividends and another investor was to receive $90 in dividends, you would receive 10% of the purchased shares at the average price and the other investor would receive 90% of those shares. It is then credited to your account.
The brokerage firm does not receive those shares directly from the company whose dividends you are reinvesting. It is all done in the open market. Hence, you cannot determine exactly how many shares you will receive nor at what price until the transactions are actually completed. This can work for or against you if the stock is making a major move during the day(s) this reinvestment is actuated. You may have noticed that very recently with this crazy market. For thinly traded stocks (i.e., small cap stocks), it may actually take a couple of days before the process is completed and credited to your account. That's why you should focus on the more liquid-trading stocks (read: larger capitalization with larger trading volumes) for dividend reinvestment. You shouldn't have to worry about this too much unless you're investing in something like "XYZ Vacuum Cleaner Corporation" since most companies that pay a dividend are large enough to facilitate an orderly DRIP process.
So if the broker did not receive the dividend money until late on the pay date or at the close, they cannot purchase any shares until the next trading day(s). You said you are waiting to see what MAIN and O did. So am I. You will probably see it credited at the end of trading on Monday once the whole process is complete. Don't expect to see the reinvestment at the closing prices of Friday due to the volatility. However, it will be somewhere in the range. As I said, sometimes it works out well and sometimes the price isn't as great. Over the long term, these will average out.
If the brokerage is handling your DRIP, you will not see the money pop in to your account and then back out for the reinvestment. On Friday, I saw several other companies with reinvestment "book orders" but without the share count or price per share. This tells me they received the money earlier in the day but the price and quantity did not show up until later in the day after the market closed and all the transactions were completed.
The nice thing about DRIPs is you can purchase fractional shares without thinking about it and over the long term it will really add up.
Good luck with your investing and have patience. Divided growth investing is a marathon and not a sprint.
Congratulations on setting up your DRIPs.
I don't know exactly how your brokerage works but this is how mine, TDAmeritrade, handles DRIPs.
First, it depends on when the company paying the dividend actually transfers the money to their shareholders. Some credit the dividend before or at the market's open, 09:30am EST/DST. Some effect the transfer of the money during the trading day and some do it at the time of the official close of the trading day, 4:00pm EST/DST. Obviously, your broker can't use this dividend money to purchase more shares for your account until it has the money to do so. It's not a charity.
Secondly, the broker determines how much of this dividend money it has to spend to purchase more shares. If only half their customers wish to reinvest, then 50% of the dividend payment is allocated to the reinvestment process. Of course, it knows this beforehand. That is why TDAmeritrade requires you to identify the companies you wish to reinvest before the ex-dividend date which is some days the issuing company specifies before the dividend is to be paid.
It then places a market order for that amount. I'm not sure how they specifically execute that trade but obviously a trade worth potentially millions of dollars is not going to execute all at once without significantly affecting the share price. The "market makers", those firms that are supposed to ensure fair and orderly trading, will assign shares to that order as they are available at whatever price they can agree on. For stocks listed on the NASDAQ exchange, this is done by computer rather than market makers (MSFT comes to mind here). Your broker may actually purchase 10,000 shares at one price, another 2,000 at another price, et cetera. At the end of this, the broker determines what the average price per share this total dividend amount produced and allocates that to each account based on your percentage of the entire amount. In essence (and in simple numbers), if you were to receive $10 in dividends and another investor was to receive $90 in dividends, you would receive 10% of the purchased shares at the average price and the other investor would receive 90% of those shares. It is then credited to your account.
The brokerage firm does not receive those shares directly from the company whose dividends you are reinvesting. It is all done in the open market. Hence, you cannot determine exactly how many shares you will receive nor at what price until the transactions are actually completed. This can work for or against you if the stock is making a major move during the day(s) this reinvestment is actuated. You may have noticed that very recently with this crazy market. For thinly traded stocks (i.e., small cap stocks), it may actually take a couple of days before the process is completed and credited to your account. That's why you should focus on the more liquid-trading stocks (read: larger capitalization with larger trading volumes) for dividend reinvestment. You shouldn't have to worry about this too much unless you're investing in something like "XYZ Vacuum Cleaner Corporation" since most companies that pay a dividend are large enough to facilitate an orderly DRIP process.
So if the broker did not receive the dividend money until late on the pay date or at the close, they cannot purchase any shares until the next trading day(s). You said you are waiting to see what MAIN and O did. So am I. You will probably see it credited at the end of trading on Monday once the whole process is complete. Don't expect to see the reinvestment at the closing prices of Friday due to the volatility. However, it will be somewhere in the range. As I said, sometimes it works out well and sometimes the price isn't as great. Over the long term, these will average out.
If the brokerage is handling your DRIP, you will not see the money pop in to your account and then back out for the reinvestment. On Friday, I saw several other companies with reinvestment "book orders" but without the share count or price per share. This tells me they received the money earlier in the day but the price and quantity did not show up until later in the day after the market closed and all the transactions were completed.
The nice thing about DRIPs is you can purchase fractional shares without thinking about it and over the long term it will really add up.
Good luck with your investing and have patience. Divided growth investing is a marathon and not a sprint.
=====
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan