How DRIP Works?

1. Owning your first share

2. Set up the DRIP Account

3. Build your DRIP Portfolio

4. Points you don't want to miss

1. Owning your first share

The very first step to get started in DRIP is to own at least one registered share of the company you wish to participate. Note here it is called ‘registered share’, not simply a share. Here comes the caveat. For most of us as individual investors who own shares through full-service brokers or online discount brokers, you are non-registered or beneficial shareholders. The shares you purchased through your brokers are held in the name of your brokerage firms (known as in ‘Street Name’). You become a registered shareholder only if you hold a share certificate that indicates the number of shares you hold in the company in your own name.

There a number of ways to own your first registered share.

1. Buy from your stock broker.
Obviously the easiest way is to buy the share from your broker, and request a share certificate transferred under your name. The biggest disadvantage of this method is the sizable fees involved. Canadian discount broker usually charges a flat fee of $20-$25 for share purchase fewer than 1000 shares, plus share certificate transfer fee ranging from $20 - $50 each.  It could be as high as $75 dollars to just purchase one share and registered to your name.

2. Buy a share from the company direct.
If you are interested in the DRIP offered by US companies, you can shop around to buy the shares from companies who offer DSP - Direct Stock Purchase plan. However, as mentioned earlier, Canadian investors cannot take advantage of this plan as no Canadian companies so far offered such plan.

3. Get the first share from your friend.
You may be lucky enough to have a friend who owns more than one share of a qualifying DRIP company in which you would like to participate. Your friend can first deregister one share and then re-register it in your name through the company’s transfer agent. Normally, there will be no fee to deregister the share, but you do have to pay for the transfer fee.

4. Obtain is through 3rd party (NAIC, shareowner.com, first share... more on this topic...

2. Set up the DRIP Account

Once you have the first share registered in your name, the rest is pretty easy. You can request or download the DRIP authorization or enrolment form for each company you would like to join. Fill out the form and send it out to company’s transfer agent. Once it gets approved in 1-2 weeks, you will start to enjoy the benefits of DRIP investing.

3. Build your DRIP portfolio

The process of building your DRIP portfolio is more or less like managing a mutual fund. Imagine yourself as a mutual fund manager; the first three things in your mind should be diversification, diversification, and diversification.

You should start your portfolio with 1-2 DRIP companies, and then gradually increase it to 6-7 DRIPs across different industries. An ideally diversified DRIP portfolio should cover the sectors such as utilities, banking, energy, resources and telecom.   


4. Points you don't want to miss

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