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DRIP – Dividend ReInvestment Plan

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.

YearPriceValueSharesFractional SharesFull SharesDividendsDividend / Year
1990$5.41$5,000.00924.0000.0000$0.000.363
1991$5.97$5,858.16981.26657.26657$341.880.370
1992$6.13$6,380.681,040.89559.62859$365.520.373
1993$7.16$7,853.551,096.86555.97055$400.740.385
1994$5.44$6,411.171,178.52581.66081$444.230.405
1995$6.81$8,523.681,251.64173.11773$497.930.423
1996$8.50$11,177.161,314.96063.31863$538.210.430
1997$10.50$14,385.661,370.06355.10355$578.580.440
1998$9.56$13,714.331,434.55364.49064$616.530.450
1999$7.85$11,910.381,517.24682.69282$649.140.453
2000$9.00$14,353.141,594.79477.54877$697.930.460
2001$11.74$19,468.451,658.30063.50663$745.570.468
2002$13.13$22,577.761,719.55561.25561$804.280.485
2003$14.73$26,223.221,780.25960.70460$894.170.520
2004$17.38$31,902.241,835.57255.31355$961.340.540
2005$24.27$45,627.731,880.00544.43344$1,078.400.588
2006$29.77$57,227.371,922.31742.31142$1,259.600.670
2007$28.99$57,304.261,976.69154.37454$1,576.300.820
2008$24.59$50,583.512,057.07680.38680$1,976.691.000
2009$28.68$61,136.312,131.67174.59474$2,139.361.040
2010$33.98$74,821.642,201.93270.26170$2,387.471.120
1,277.9321,269.000

 

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2 Responses to "DRIP – Dividend ReInvestment Plan"

  1. So what are some stocks/mutual funds with the highest dividend payouts?

    I forgot to mention that we also have a mutual fund outside of retirement that we invest it. It is the Target 2045 fund, and it has dividends as well.

  2. Ken says:

    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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