Drip Investing

[94gti]

I am not to sure if there at are any investment specialists on the board or not, but I am looking for some advice on Dividend Reinvestment Plans.

Does anybody use them?

I currently have a savings plan pulling money and putting it into Index Funds, but I am looking to supplement that with a core group of 12-16 individual companies that pay regular and increasing dividends. Am I wasting my time/money?

Please advise, and don't make too much fun...I am still trying to learn the ole investment strategies.

[Kor]

Re: Drip Investing

Did you try google-ing for information?

[NeonGTI]

Re: Drip Investing

I work for an energy income trust and they (like most of the others) have a DRIP program that is pretty cool. It allows for fractional monthly purchase of trust units at below market price. The DRIP plan is available to non-employee investors in the same form as is it is to employees.

The downside to the trusts is that the distributions are taxed as income, however the payout is substantially higher than most dividend issuing companies. Currently the return to value is about 15% annually ($2.50/yr with a unit price of $17.00-ish).

Again, most of the income trusts are in the same range.

I am not to sure if there at are any investment specialists on the board or not, but I am looking for some advice on Dividend Reinvestment Plans.

Does anybody use them?

I currently have a savings plan pulling money and putting it into Index Funds, but I am looking to supplement that with a core group of 12-16 individual companies that pay regular and increasing dividends. Am I wasting my time/money?

Please advise, and don't make too much fun...I am still trying to learn the ole investment strategies.

[94gti]

Re: Drip Investing

Did you try google-ing for information?

Uh ya...I understand how they work, but I am trying to figure if it would make sense for me to use them as an investment. Google did not answer that question for me.

[94gti]

Re: Drip Investing

I work for an energy income trust and they (like most of the others) have a DRIP program that is pretty cool. It allows for fractional monthly purchase of trust units at below market price. The DRIP plan is available to non-employee investors in the same form as is it is to employees.

The downside to the trusts is that the distributions are taxed as income, however the payout is substantially higher than most dividend issuing companies. Currently the return to value is about 15% annually ($2.50/yr with a unit price of $17.00-ish).

Again, most of the income trusts are in the same range.

Thanks for the info, I will also look into Trusts. So the income from it were tax at your normal tax rate?

[Mefro]

Re: Drip Investing

If you are looking at individaul companies(building your own portfolio) vs pooled funds(index funds, mutual funds etc.) would depend how much you have invested. To be cost effective and get enough diversification to reduce risk with individual companies you need a base of $250,000 give or take a bit. If you are below that level you are better of using pooled funds.

I am not a big fan of index funds as it is passive investing and you get the bad companies in with the good companies. Another thing with the index fund is you follow both the ups and down just as much as the index. Nothing is done to minimize the risk.

What I may recommend is try and find a good Dividend Fund if you are below the $250K range.

Please note there also a lot of other factors to consider when investing, like investment knowledge, time horizon, comfort with risk, chance of needing the funds early, etc. If your knowledge in investments is low I would seek an advisor.

[liquid]

Re: Drip Investing

If you are looking at individaul companies(building your own portfolio) vs pooled funds(index funds, mutual funds etc.) would depend how much you have invested. To be cost effective and get enough diversification to reduce risk with individual companies you need a base of $250,000 give or take a bit. If you are below that level you are better of using pooled funds.

I am not a big fan of index funds as it is passive investing and you get the bad companies in with the good companies. Another thing with the index fund is you follow both the ups and down just as much as the index. Nothing is done to minimize the risk.

What I may recommend is try and find a good Dividend Fund if you are below the $250K range.

Please note there also a lot of other factors to consider when investing, like investment knowledge, time horizon, comfort with risk, chance of needing the funds early, etc. If your knowledge in investments is low I would seek an advisor.

Well said.

Asking a question like "is this a good investment" is impossible to answer without knowing what specific companies, sectors, countries, etc... you are looking at. The theory behind DRIP's is solid, although not earth shattering. Then again, most strategies are great in theory - it all comes down to application, and very specific choices.

Dividend paying stocks tend to be on the safer side of the investment field considering their usual large capitalization. Mefro made a good point about finding a decent dividend fund... but make sure the fees in the fund are low. Over 70% of funds fail to even match their index simply because the fees outweigh the alpha (positive portfolio management) that is accomplished through that fee.

Every type of investing has it's negatives:
* Index Funds - easy diversification, and usually low fees. Get the good and bad.
* Actively managed funds - Easy to select sectors, risk, etc. However they have higher fees.
* Individual stocks - No fees, but requires a large amount of capital and comfort in managing your own portfolio (or a trusted broker).

[Mefro]

Re: Drip Investing

Just to give you some more insight.

MER-Management expense ratio. Basically what the fund manager takes as a cut for managing the fund and the cost involved. Anytime you see quoted returns its after the MER is taken. This is a standard regulation set out by the MFDA.

A good MER for a dividend fund would be 1.75% or below, just to put it into perspective.

Index funds usually have a MER around 1.00%. A large portion of returns from the index come from dividend re-investment vs capital growth. If you can find a fund that looks to invest in companies not only paying a solid dividend but consistently growing its dividend you will out perform the base index. Making the higher MER worth it.

For example comparing the RBC Canadian Dividend Fund Vs S&P/TSX Composite(the canadian stock index)



I have just used the RBC fund for example purposes and in no way am I promoting it.