I have written before about how I am a passive-leaning (if not down right lazy) investor.
Yesterday I checked over my investment accounts to see what had transpired in the past month or so, and I saw that some of the few stocks I own in one or two of my investment vehicles had paid dividends, however, I had not signed up for the Dividend ReInvestment Plan (DRIP) for these stocks so I received the dividends in cash.
Getting cash is OK, but I prefer to have dividends reinvested, since it causes me to buy more of the stocks I own for free (i.e. no service or trading charge). The DRIP program I have is with my investment firm (TD Waterhouse) and not the actual DRIP set up by the Company who’s stock I own (there is a big difference, I have been told). The DRIP with TD Waterhouse is simply them taking the dividend and buying as many whole shares of that stock, without charging me a transaction fee.
An example would be if I had 500 shares of Magic Bank and they declared a dividend of 61 cents a share for the period, I would then receive $305 cash into my account, however, since Magic Bank’s share price on the day of declaration was $65, the TD DRIP would have purchased 4 shares for me (at $260) and left me $45 cash, and $0 transaction fee.
I do not know how actual DRIPs work with specific companies, I believe they allow for the purchase of partial shares (anyone care to comment on this, please feel free).
This methodology allows for more laziness in investing on my part, which is what I strive for. I called TD Waterhouse and had DRIPs turned on all investing accounts that I have, for all stocks that are supported, so now any time dividends are declared, more stock will roll into my account instead of more cash.
When I call myself Passive, I do not hold many Stocks directly, I mostly hold them through index funds, thus the passive-leaning label, but I do own a few stocks directly.