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08-20-2014, 11:47 AM
(This post was last modified: 08-20-2014, 11:48 AM by cannew.)
"Synthetic DRIPs are offered by most discount brokers that will allow you to reinvest your dividends without being charged commissions.
However, there is a catch – the dividend received must be enough to purchase at least ONE whole share or the dividend balance will be distributed as cash. In other words, a synthetic DRIP will not allow you to purchase partial shares."
Do you think there is much difference between Synthetic DRIP or Full DRIP where partial shares are bought? I'll post my Jan to Jul 2014 DRIP later.
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Full drips result in faster reinvestment of money allowing your investments to compound faster. Also commission costs - if you have to wait for the cash to accumulate and place another order to buy more shares....thats one transaction that you could have saved the transaction fees on.
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Both Sharebuilder and Schwab offer free partial share reinvestment of dividends. I'm surprised to hear that there are brokers that require full shares be purchased.
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(08-20-2014, 01:16 PM)EricL Wrote: Both Sharebuilder and Schwab offer free partial share reinvestment of dividends. I'm surprised to hear that there are brokers that require full shares be purchased.
I believe that is ScottTrade. I don't think they charge a commission on it but I don't have an account there.
For me, I'd rather just let the brokerage reinvest whatever I get back into the company. I'm not particularly worried about the price -- 10 years down the road I'm not so sure it will make a difference price-wise. The income change coming from it is noticeable even with a slow grower like T.
For someone starting out with a small account, like my wife, it would take a month or more to collect enough dividends that would cover 1 share of something like UTX or GWW. If we saved all the dividends, it may take almost a year to purchase another position of around $1000 to keep transaction costs low. So, we DRIP the conventional way.
I think you need to do what makes sense to you and your circumstances. Neither is a bad way.
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“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
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I full drip for all my stocks, some with DRIP plans, the remainder at broker which does full. Since January the following are the total of the partial shares bought (not counting the full shares) for each month: I think it's significant!
Jan-14 9.9564
Feb-14 4.3957
Mar-14 6.2323
Apr-14 10.0831
May-14 7.8450
Jun-14 7.9435
Jul-14 10.4961
Total 56.9521
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No drips of any kind for me. I buy shares of a specific stock that appears to give oversized value on a given day. For the life of me, can't see the value of arbitrarily buying shares, no matter what the price, and just because shares add to an existing holding. I doubt that Warren Buffet uses drip either, as entry price represents a significant factor in potential gains from a purchase. Cash is being allowed to accumulate in this current long in the tooth, widely over priced market. Patience will likely be rewarded with bargains such that any foregone opportunity cost will be negligible.
Alex
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(08-21-2014, 06:45 AM)hendi_alex Wrote: No drips of any kind for me. I buy shares of a specific stock that appears to give oversized value on a given day. For the life of me, can't see the value of arbitrarily buying shares, no matter what the price, and just because shares add to an existing holding. I doubt that Warren Buffet uses drip either, as entry price represents a significant factor in potential gains from a purchase. Cash is being allowed to accumulate in this current long in the tooth, widely over priced market. Patience will likely be rewarded with bargains such that any foregone opportunity cost will be negligible.
You took the words out of my mouth!
No DRIP/FRIP for me either.
I want the cash and I want to CHOSE which stock I buy.
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I drip everything I own and hopefully will continue to do so as long as my expenses remain less than my pension and my non-profit wages (and SS I can draw anytime). To me it's like compounding of interest. And hey, I bought the stock/fund/etf in the first place, didn't I?? It was good enough then, it's still good enough now.
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(08-25-2014, 09:29 PM)CritMass Wrote: And hey, I bought the stock/fund/etf in the first place, didn't I?? It was good enough then, it's still good enough now.
Your process is your own, but this is super flawed logic.
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(08-26-2014, 09:08 AM)rapidacid Wrote: (08-25-2014, 09:29 PM)CritMass Wrote: And hey, I bought the stock/fund/etf in the first place, didn't I?? It was good enough then, it's still good enough now.
Your process is your own, but this is super flawed logic.
The logic here is flawed only if the investing thesis changes significantly. Sure, if a stock becomes obviously overvalued, you might want to stop automatic reinvesting, but that doesn't mean that automatic reinvesting is wrong in all cases. My own example would be MO. I still think that MO is a buy at today's prices, and so I am glad that I've been reinvesting for the past several years, even as the price has gone up from my original buy-in amount. I haven't, and probably wouldn't, allocate new money to MO, but I am perfectly happy to be accumulating more shares in the background.
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(08-26-2014, 01:40 PM)TomK Wrote: My own example would be MO. I still think that MO is a buy at today's prices, and so I am glad that I've been reinvesting for the past several years, even as the price has gone up from my original buy-in amount.
That is exactly the point.
If you are happy with the stock price and if you still consider it a "buy" price than you should use DRIP to negate the commissions impact.
In most cases however the dividend amount can be better allocated elsewhere to another stock with a better buy price than your current holding.
To each his own but automating everything without thinking about it is more often wrong than right.
There are and always be exceptions, like your MO example, but can
you say the same for every other company in your portfolio?
In my opinion, DRIP is great if (and only if) I will consider buying that company in case I didn't already had some shares of it at the current price.
In most cases I won't be buying shares on their market value and always try to get a lower rate using OCO (one-cancel-other) limit orders between 2 stocks that I like (in my IRA account where I can't sell puts) or selling puts (in my margin account).
I do realize that if I "timed the bottom" than I won't get the shares and they will go to the moon without me.
It's my opinion that I'll time the bottom less often than not so I acknowledge that drawback and sleep well at night.
I'm just the kind of person who likes to take control of things and not let others dictate what happens (DRIP dictates which price I buy).
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(08-26-2014, 01:40 PM)TomK Wrote: I'm just the kind of person who likes to take control of things and not let others dictate what happens (DRIP dictates which price I buy).
Not DRIPping also satisfies my "need" to trade. If I get to pull the trigger on a few purchases a month from accrued dividends I can feed the inner beast.
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