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Category: DRIP is short for Dividend ReInvestment Plan.
These plans are approved by the board of directors of public corporation and offered to shareholders. Most plans are similar in that they allow shareholders to purchase shares (including fractional) with the dividend cash earned by the company but the details can differ.
DRIP Details
- Cash dividends can be reinvested to purchase shares (including fractional)
- Some corporation will provide a discount on the shares purchased
- Some plans will allow you to make optional cash purchase (OCP) at little to no commision
- When available, the optional cash purchase can have a minimum and a maximum
Fractional and discounted shares can really pay off over time. It accelerates the compound growth of DRIP investing.
DRIP Examples
Let’s take Fortis for example, it’s a Canadian Dividend Aristocrat and it has increased its dividends for 38 years. Imagine that you were invested in Fortis 20 years ago and you had your dividend reinvested. You would have the following benefits:
- Full and / or fractional shares purchase every quarter
- A discount of 2% on the shares purchased
Below is a table showing you the difference between fractional shares and full shares. After 20 years, you end up with 8 more shares simply by leveraging fractional shares. If you do OCP, it also buys fractional shares for you. Over time, it can add up. The table below simply assume you buy once and let compound growth do its work.
1990 $5.41 $5,000.00 924.000 0.000 0 $0.00 0.363
1991 $5.97 $5,858.16 981.266 57.266 57 $341.88 0.370
1992 $6.13 $6,380.68 1,040.895 59.628 59 $365.52 0.373
1993 $7.16 $7,853.55 1,096.865 55.970 55 $400.74 0.385
1994 $5.44 $6,411.17 1,178.525 81.660 81 $444.23 0.405
1995 $6.81 $8,523.68 1,251.641 73.117 73 $497.93 0.423
1996 $8.50 $11,177.16 1,314.960 63.318 63 $538.21 0.430
1997 $10.50 $14,385.66 1,370.063 55.103 55 $578.58 0.440
1998 $9.56 $13,714.33 1,434.553 64.490 64 $616.53 0.450
1999 $7.85 $11,910.38 1,517.246 82.692 82 $649.14 0.453
2000 $9.00 $14,353.14 1,594.794 77.548 77 $697.93 0.460
2001 $11.74 $19,468.45 1,658.300 63.506 63 $745.57 0.468
2002 $13.13 $22,577.76 1,719.555 61.255 61 $804.28 0.485
2003 $14.73 $26,223.22 1,780.259 60.704 60 $894.17 0.520
2004 $17.38 $31,902.24 1,835.572 55.313 55 $961.34 0.540
2005 $24.27 $45,627.73 1,880.005 44.433 44 $1,078.40 0.588
2006 $29.77 $57,227.37 1,922.317 42.311 42 $1,259.60 0.670
2007 $28.99 $57,304.26 1,976.691 54.374 54 $1,576.30 0.820
2008 $24.59 $50,583.51 2,057.076 80.386 80 $1,976.69 1.000
2009 $28.68 $61,136.31 2,131.671 74.594 74 $2,139.36 1.040
2010 $33.98 $74,821.64 2,201.932 70.261 70 $2,387.47 1.120
1,277.932 1,269.000
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Anyone looking for a complete list of companies that offer dividend reinvestment plans (DRIPs) should check out this site – http://cdndrips.blogspot.com/
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