DRIP Update

I have held a DRIP (Dividend Reinvestment Plan) in a few stocks since 2008. So time for an update.

China Mobile - CHL
I purchased 5.22 shares for $240 in 2008 and have reinvested the dividends. I now own 6.07 shares worth $326. 14% of the shares are from DRIP shares, and the return on my original investment is 36% (7.2% per year).

General Electric - GE
I purchased 73.75 shares for $1216 in 2008. I now own 85.81 shares worth $2119.48. 14% of the shares are from the dividend reinvestment plan, and the return on my original investment is 75% (14.9% per year).

My strongest performing investment in this group of DRIPs is ABV. The increase in shares is about the same, but a very strong increase in the stock price has made this a real winner for me.

Ambev, formally Companhia de Bebidas das Américas - ABV
I purchased 4.94 shares (24.7 shares after a 5:1 stock split in 2010) for $215 in 2008. I now own 28.36 shares worth $1088.90. 13% of the shares are from DRIP, and the return on my original investment is 506% (101% per year).

I chose to invest in ABV after visiting Brazil and finding their product everywhere. I recognized the company name when screening for available DRIP programs and chose to invest a few hundred dollars.

Overall, the stocks are adding 2.8% in new shares through DRIPs, plus the increase in the share price.  As time goes on, more and more of the shares will be from DRIPs. At some point down the road, I could either stop the DRIP, and take the dividends in cash, or sell the stocks entirely.

This post was featured in: The Wealth Builder Carnival #137, and Carnival of Personal Finance #425.

2007 Top Marginal Rates of Tax for Canadian Dividends

I've been researching into the tax implications of having various dividends and capital gains. I found a good resource from Grant Thorton LLP which I've shared here. Simply put in each province, when you combine federal and provincial tax rates, you're going to get taxed at a different rate depending if you declaring interest income, capital gains, foreign, eligible, or other canadian dividends. An eligible dividend is declared when it is awarded by a Canadian company. You will pay the highest rates of tax on common interest and on foreign dividends.

Dividend Reinvestment Programs and Direct Stock Purchase - Not So Easy For Canadians

I want to avoid brokerage costs as much as possible right now, as I would have to wait a long time to save up enough money to invest and to cover the brokerage costs. I investigated dividend reinvestment programs (DRIPs) and direct stock purchase programs. For a DRIP if you own at least one share, you can participate in dividend reinvestment through companies and their transfer agents. I found www.directinvesting.com is able to transact the one share and enroll me. Even better, in some cases with stock like General Electric (GE) you can participate in a direct stock purchase plan and buy stock directly from their transfer agent.

HOWEVER, you need to write a cheque, drawn in US funds on a US bank with a US address (Basically, the branch needs a 9 digit ABA transit number and has to be located in the US). Hmm, can't open accounts online anymore thanks to the Patriot Act and what not. No trips to the US planned in the near future. Alright, I've had an account with Bank of Montreal since I was six, maybe they can facilitate something....

"In regards to your inquiry, I can advise that, regrettably, BMO Bank of Montreal does not provide the facility you have requested. Please note that we do provide the option to open US Dollar accounts, however we are unable to set up accounts that are held at banks in the United States. I apologize for this limitation."

Well there goes that idea. I'm going to try RBC next, they have a program called RBC Access USA. It looks like it's set up for snowbirds and it looks like the accounts are held with RBC Centura bank. Not much information online, and you have to go in to the branch to set it up. Well Thursday is the day they're open late so wish me luck.