DRIPs/SIPs/Synthetic DRIPs

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sydney2
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Post by sydney2 »

Sorry...... :cry: :cry:
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Operabob
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Post by Operabob »

syd,

Nothing to be sorry for.

We're both giving him valid advice.

As I can't tell how experienced he is as an investor I just like him to give us more insight so we can both steer him correctly.

OB
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Post by pitz »

Operabob,

If you wanted to do a RRSP DRIP, is the trick to set up a non-RRSP DRIP, and then deposit shares 'in-kind' to one's RRSP on a periodic basis (taking the capgains tax hit, of course, between the DRIP's acquisition cost, and the proceeds at contribution)?

Do the big Canadian bank discount brokerages get upset if you send them a bunch of share certificates every six months for in-kind contribution to a RRSP? Do they even allow it?
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Post by Operabob »

pitz,

http://dripinvesting.org/articles/Canad ... 003/11.htm

The discount brokers don't seem to have a problem taking your money (certificates) but they certainly seem not to like giving it back (certificate transfer out fees). :evil:

OB
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Where can I buy a first share of BMO so I can get a DRIP?

Post by Mouly »

Where can I buy a first share of BMO so I can get a DRIP?

I went down the list at the DRIP Resource Investing Center but the ones I checked didn't offer BMO. Any recomendations? I'd pay a little bit of a premium to use a name with a well known reputation.
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Norbert Schlenker
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Post by Norbert Schlenker »

Have you tried posting a message in their forum?
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Post by brucecohen »

Have you tried the Canadian Shareowners Association? They used to promote the idea of buying a single share or so to start a DRIP and even facilitated that. I just checked their web site at www.shareowner.com but it now seems to be little more than a sales pitch for their magazine. You might try phoning them in Toronto.

Or, see if BMO sells shares directly to shareholders, ideally at a discount. A number of large companies allow shareholders to buy $5,000 or $10,000 or so worth directly from treasury without commission. Discounts used to be common but are now rare. In any event, if you can take advantage of lump sum purchases in the future, it might be worthwhile to bite the bullet and buy your single share now through a discount broker.

Or, send an e-mail to BMO's investor relations dept asking if they know where you can buy a single share to join their DRIP. Who knows; they might have the answer(s).
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Bylo Selhi
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Post by Bylo Selhi »

Canadian MoneySaver magazine runs a forum on their website (only subscribers have access) over which people buy and sell shares for DRIPing. One recent case-in-point...
BMO shares for sale
----------------------------------------------------------------------------------------------------
MIKE P****E
Posted on: 7/3/2006

Hello;

i would be interested in purchasing the share. Please contact me at p****e@sympatico.ca.

Thank you

----------------------------------------------------------------------------------------------------
r****s
Posted on: 7/2/2006

If anyone interested contact me at "r****s@shaw.ca
Note that 7/3 means July 3rd, not March 7th and I've obscured the names and e-mail addresses to protect the posters' privacy.
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Post by YogiBear »

BruceCohen wrote:Have you tried the Canadian Shareowners Association? They used to promote the idea of buying a single share or so to start a DRIP and even facilitated that. I just checked their web site at www.shareowner.com but it now seems to be little more than a sales pitch for their magazine. You might try phoning them in Toronto.
This might be the CSA site you were looking for- but I don't recall seeing the single share DRIP info you mention. Maybe it was some years ago?
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Post by NormR »

BruceCohen wrote:Or, see if BMO sells shares directly to shareholders, ideally at a discount. A number of large companies allow shareholders to buy $5,000 or $10,000 or so worth directly from treasury without commission. Discounts used to be common but are now rare. In any event, if you can take advantage of lump sum purchases in the future, it might be worthwhile to bite the bullet and buy your single share now through a discount broker.
Buying the first share remains a big problem. I don't know of a company in Canada that sells the first share to investors (apart from brokers of course). U.S. firms won't sell to Canadian residents.
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Post by NormR »

Bylo Selhi wrote:Canadian MoneySaver magazine runs a forum on their website (only subscribers have access) over which people buy and sell shares for DRIPing. One recent case-in-point...
Humm, don't count on that lasting. I doubt that the editor is aware of the activity and he'll likely clamp down when he finds out.
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Bylo Selhi
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Post by Bylo Selhi »

NormR wrote:Buying the first share remains a big problem. I don't know of a company in Canada that sells the first share to investors.
Yet it's been OK for them to do so, at least in ON, for nearly 5 years now.

Rule 32-501 Direct Purchase Plans
The Rule will establish a regime that will permit reporting issuers to establish direct purchase plans in Ontario under which an issuer may issue securities directly to investors without the need to sell those securities through a registrant. The Rule would establish safeguards around the use of such plans that the Commission believes will provide appropriate protection for investors in respect both of the administration of the Plans and the promotion of securities offered under direct purchase plans.
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Bylo Selhi
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Post by Bylo Selhi »

NormR wrote:Humm, don't count on that lasting. I doubt that the editor is aware of the activity and he'll likely clamp down when he finds out.
Huh? Dale's fully aware and has encouraged his readers to buy/sell first shares via this mechanism. Some of his authors, including I believe OperaBob, have pointed readers to this forum as well.

What's your concern? These are private transactions between consenting adults ;)
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NormR
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Post by NormR »

Bylo Selhi wrote:
NormR wrote:Buying the first share remains a big problem. I don't know of a company in Canada that sells the first share to investors.
Yet it's been OK for them to do so, at least in ON, for nearly 5 years now.

Rule 32-501 Direct Purchase Plans
The Rule will establish a regime that will permit reporting issuers to establish direct purchase plans in Ontario under which an issuer may issue securities directly to investors without the need to sell those securities through a registrant. The Rule would establish safeguards around the use of such plans that the Commission believes will provide appropriate protection for investors in respect both of the administration of the Plans and the promotion of securities offered under direct purchase plans.
Yup, a very irritating situation. But would you really want the extra hassle, and expense, of dealing with a large number of investors with stakes of less than $500?
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NormR
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Post by NormR »

Bylo Selhi wrote:
NormR wrote:Humm, don't count on that lasting. I doubt that the editor is aware of the activity and he'll likely clamp down when he finds out.
What's your concern? These are private transactions between consenting adults ;)
Let's just say that I wouldn't do it without getting legal advice.

But, if you see no problems, why not start a new section on the ring for DRPers?
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Bylo Selhi
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Post by Bylo Selhi »

NormR wrote:I don't know of a company in Canada that sells the first share to investors.
Ironically, NT announced their intention to do so persuant to Rule 32-501 just before they suspended their common share dividends. At that point they were required to shut down their DRIP/SPP and the direct-purchase plan with it. Maybe that's why no other company wanted to follow suit :twisted:
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Post by Operabob »

LOL!

I have 25 DRIPs with SPPs:

2 purchased through BMOInvestorline
4 through Money Paper (aka directinvesting.com)
19 through exchanges

Here's an excerpt from my latest Canadian MoneySaver magazine:

Numbers, Numbers, Numbers

One of my favourite investing books is “Stop Buying Mutual Funds” by Mark J. Heinzl (1999). I’ve always remembered how the book showed $10,000 invested for 30 years at 10% per year (the long term average of the TSX) grew to almost $175,000. Placed in a mutual fund earning 10% per year and charging the average at the time management expense ratio (MER) of 2.1% the investor received $98,000 after 30 years. While the mutual fund investor earned $88,000 profit ($98,000 less $10,000) that seemingly small 2.1% MER earned the fund company $77,000 or almost as much as the investor. Note: the average Canadian equity mutual fund MER is now estimated at 2.6% or almost 25% higher than 1999.

DRIPs are about paying management fees to ourselves. I decided to apply a little of Mr. Heinzl’s thinking and conducted a quick poll at dripinvesting.org where we maintain a share exchange message board.

Twenty-two respondents indicated they’d conducted a total of 528 share exchanges for an average of 24 exchanges per person. This is entirely a reasonable number as we’ve conducted many group purchases at dripinvesting.org (17 in one group alone). The average cost of a single share purchase and removal from street name is around $85. With 528 transfers that is 528 x $85 = $44,880 in saved commissions. How would those savings grow if invested over 30 years at 10% per year?

$44,880 @ 10% over 30 years = $783,129.00

While exchangers at dripinvesting.org saved $44,880 on commissions immediately the long-term growth potential is outstanding. That’s more than three-quarters of a million dollars in the pockets of the investors on these 528 transfers alone. Note: there is nothing to guarantee a 10% return per year but experience shows many DRIPpers achieving or bettering that return.
There is no problem exchanging shares. If you look on the back of any certificate you'll find a section for a power of attorney transfer which is processed legally through a transfer agent (Computershare, CIBC Mellon or National Bank in Canada).

Just because there are real estate agents doesn't mean I have to sell my home through one. Same with any capital property as long as it's legally processed. (Makes me wonder when the CCRA will jump in on the kid that traded the red paper-clip up for a house). What law says only stock brokers can buy and sell your property?

Here's another article. When the dust was settled my physio actually came out ahead $20 thanks to the Fortis 4-1 split. As she was investing $5,000 in her first year in a DRIP portfolio this amounted to an instant 17.4% return on her money:


http://dripinvesting.org/articles/Canad ... 005/03.htm

BTW: The group of 17 was for Terasen. One guy bought 17 shares, asked for the certificate, sent it back to Computershare and asked for 17 single certificates. End result an $85 commission and transfer fee split 17 ways or $5 per person.

Down side of course is that TER is no longer. Still over the last 2 years I've helped organize at least 20 group purchases from 7 - 10 members per group.

Mouly, did you actually post on the Canadian DRIP and/or the Share Exchange Boards? It's an incredibly helpful site when you do.

1. Click "Community" to register
2. After that clicking "Community" should get you to the Boards.

Seems to me someone offered BMO just the other day.

General practice;

a. Settle on a particular day's closing price.
b. Send the other person cheque plus self-addressed stamped envelope.
c. Everyone throws in $10 to buy the other person lunch for their trouble. (Note: this is a zero-sum transaction as the next person will send you $10 when you transfer the "single" certificate.
d. We do not try and profit off each other on this. We help each other.

If you're thinking of going this route I suggest you read this article to protect yourself:

[/url]http://dripinvesting.org/articles/Canad ... 07.htm[url]

Welcome to the Cult!

OB 8) [/url]
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Operabob
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Post by Operabob »

Norm,


Buying the first share remains a big problem. I don't know of a company in Canada that sells the first share to investors (apart from brokers of course). U.S. firms won't sell to Canadian residents.
Fortis, if you live in a province they operate in and are a customer. Some people have reported being neither and still getting registered.

Also, someone at dripinvesting.org reported getting National Bank directly.

Yes, Ontario passed a law allowing for DSPs but no Canadian Co. will really offer them until BC, Alta & Que adopt similar. BC has indicated to me they will adopt but it is not a priority to them (or the stock brokerage industry they cover).

U.S. firms won't sell to Canadian residents.
There are an estimated 1,700 US DRIPs or ADRs. Approximately 700 are DSPs (direct stock purchase plans). Most allow Canadian direct investment if you use the correct Canadian cheque - has US transfer codes. My BMO $US cheques are processed through BMO's New York branch.

While it is true we cannot hold US brokerage accounts that doesn't mean we can't buy through the US for DRIP purposes.

http://www.directinvesting.com

(aka Money Paper or Temper of the Times) allows Canadians to purchase from 1 to 100 shares of over 800 Cos. for $40 ($20 if you're a Canadian MoneySaver subscriber). They used to offer most Canadian DRIPs as well but because of the rise in our dollar and some recent difficulties with ComputerShare Canada they no longer do this.
Or, see if BMO sells shares directly to shareholders, ideally at a discount. A number of large companies allow shareholders to buy $5,000 or $10,000 or so worth directly from treasury without commission.
BMO does not sell directly. You must use one of the methods described in the link of my previous post. Once established though most Canadian equity DRIPs accept minimum OCPs in the $0 - $100 range. NA is $500 and I think PSD is $250 or $200. BCE and BMO both have a lower limit of $0.00 so I've been tempted to send a cheque for $0.01 just to see if it would be processed.

Trust DRIPs now far out number our equity DRIPs. The OCPs on trust DRIPs are commonly higher ($250 - $1,000).

Some people think we can't have US bank accounts either. Not true. If you're a BMO customer you can e-mail Harris Bank and open up a US based account or just open a RBC Centura account which has US transfer codes recognized by the US banking system so that you can make online purchases in DRIP accounts through transfer agents like EquiServe (now owned by ComputerShare). My BMO $US cheques work when mailed to my US DRIPs but because they go through an intermediate 3rd party US bank I can't make direct on-line purchases. However, this is no problem with the Harris or RBC Centura account.

OB
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Post by NormR »

Hi Operabob,

If I recall correctly, the legal problem is not for the investor who buys a few shares but for the company that sells them or for the business that facilitates a trade. By I'm not a securities lawyer.
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Post by Operabob »

Norm,

MoneyPaper is in a unique position.

They are a broker but they don't hold accounts. They make bulk purchases in their own name then immediately split the purchase transferring shares and opening accounts in the owner's name directly with the Co.

Seems to me the original problem was with third party US-based brokers holding Canadian accounts. TD Waterhouse, E-Trade and one other were each fined $1,000,000 and forced to repatriate Canadian accounts north of the border.

TD, of course laughed all the way to the bank as word has it they recovered the $1,000,000 fine in the first month when Canadian clients who'd registered with TD in the US suddenly found themselves paying $29 per trade instead of $9.

Canadians can legally use US brokers provided it's through a branch office physically located in Canada. (BTW: Does IB have a Canadian branch office? I dunno!)

With Money Paper or US DRIPs there is no 3rd party. About 2 years ago, the chair of the BCSC, responding to my repeated queries about DSPs informed me that they were about to enact legislation allowing residents to partake in US DSPs/DRIPs as well.

With further apologies to Descartes I pointed out that it amounted to putting the cart ahead of the horse as thousands of Canadians were already doing so.

It seems to be one of those grey areas the government would prefer to leave alone much like the ruling on using your home phone for business purposes. A few years back CCRA ruled you have to have a seperate line to claim phone costs (other than long distance). Accountants around here are still advising clients to claim a share of home phone costs regardless as CCRA would likely lose any court challenge and were not enforcing this rule.

Same with US DRIPs. If I'm an owner of KO and the government suddenly tried to restrict my rights as an owner it would create an interesting legal situation. CCRA would rather let sleeping dogs lay I think.

OB
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Post by Mouly »

Opera Bob - I have a BMO Investorline Account also and they offer drips that will allow you to get only integer units of stock, is that what you are referring to or have you been able to get a true drip with them? And also SPP?

I'm going to call them about this but what to get all your info first.
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Post by NormR »

Operabob wrote:Norm,

MoneyPaper is in a unique position.

They are a broker but they don't hold accounts. They make bulk purchases in their own name then immediately split the purchase transferring shares and opening accounts in the owner's name directly with the Co.

Seems to me the original problem was with third party US-based brokers holding Canadian accounts. TD Waterhouse, E-Trade and one other were each fined $1,000,000 and forced to repatriate Canadian accounts north of the border.

TD, of course laughed all the way to the bank as word has it they recovered the $1,000,000 fine in the first month when Canadian clients who'd registered with TD in the US suddenly found themselves paying $29 per trade instead of $9.

Canadians can legally use US brokers provided it's through a branch office physically located in Canada. (BTW: Does IB have a Canadian branch office? I dunno!)

With Money Paper or US DRIPs there is no 3rd party. About 2 years ago, the chair of the BCSC, responding to my repeated queries about DSPs informed me that they were about to enact legislation allowing residents to partake in US DSPs/DRIPs as well.

With further apologies to Descartes I pointed out that it amounted to putting the cart ahead of the horse as thousands of Canadians were already doing so.

It seems to be one of those grey areas the government would prefer to leave alone much like the ruling on using your home phone for business purposes. A few years back CCRA ruled you have to have a seperate line to claim phone costs (other than long distance). Accountants around here are still advising clients to claim a share of home phone costs regardless as CCRA would likely lose any court challenge and were not enforcing this rule.

Same with US DRIPs. If I'm an owner of KO and the government suddenly tried to restrict my rights as an owner it would create an interesting legal situation. CCRA would rather let sleeping dogs lay I think.

OB
Thank you for the very useful replies.

I totally agree with your 'gray area' comment. It would be much better for the securities regulators to address the issue.
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Post by Operabob »

Mouly,

First an apology:

DRIPpers (or the active DRIP hobbyist) use the term DRIP when they mean DRIPs with SPPs (Stock Purchase Plans). We really only want DRIPs with SPPs. However, we usually forget you can get a plain old DRIP without an SPP. With myself, or anyone at dripinvesting.org always assume we mean DRIP with SPP when we say DRIP.

Pure DRIP

You have to have at least 1 share removed from "street name" (sometimes more, e.g. Pepsi requires 5 shares removed). The broker delivers the share certificate into your hands. You then register directly with the company (TA should automatically send the registration).

Only dividends get reinvested, e.g. XYZ trading at $40 pays you $50 dividend. You'll get ($50/$40) = 1.25 shares added to your DRIP account. The 0.25 is called a "partial". This gives you total reinvestment of the dividend. The dividends from the new 1.25 shares will be totally reinvested next time, etc.

Synthetic DRIP

Shares are not removed from broker account but broker offers a synthetic DRIP that mimics a pure DRIP to some extent.

E.G. XYZ trading at $40 pays you $50 dividend. You'll get ($50/$40) = 1.0 whole share added to your broker account. The 0.25 partial share you iwould have received in a pure DRIP will be paid as $10 cash in your broker account. You do not get total reinvestment of the dividend (not that that is a bad thing but is a topic for a whole chapter in my book. :lol: )

DRIP + SPP

This is what BMO offers.

Again, one share (or more) must be removed from "street name". Once registered all dividends can be totally reinvested.

But as an added bonus this PLAN offers an SPP which allows you to purchase further shares directly from the company (usually commission free-Only MFC in Canada charges commission). Investments, called OCPs or optional cash payments, are just that: optional. BMO allows monthly OCPs but you don't have to send anything if you don't want to.

Using XYZ as an example sending a $100 OCP will buy you 2.5 new shares ($100/$40) commission free. Dividends on those 2.5 shares will be reinvested as well.

Reinvestment of dividends in partials is now calculated to 8 decimal places by Computershare.

The DRIP + SPP is the one the hobbyists focus on. All my elligible securities in my brokerage accounts are registered in the synthetic but I actively manage my DRIPs + SPPs.

The dificulty with the DRIP process is you have to remove a share from street name. Selling one share requires sending it back to a broker as the DRIP if it sells (most Computershare Canada DRIPs now sell through the PLAN). Most US companies, however, allow you to re-register "singles" by placing them in "safe-keeping" which puts them back into your account.

So dealing with a single in Canada is a bit of a bother. However, you've got a BMO single and someone wants it. They have ENB and you want it. Simple exchange of shares plus difference in cash value. That's how my physio built her 10 stock DRIP port: 2 group purchases (split commission 8 ways each) then trading her singles for other Cos. then selling the remaining singles for $10 lunch. As Fortis split 4-1 she had 4 singles to sell instead of 1 there.

Best advice:

Register at dripinvesting.org and start posting on the Canadian and Share Exchange boards.

Just remember: DRIPs require patience.

OB
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Post by Operabob »

Oops!
The dificulty with the DRIP process is you have to remove a share from street name. Selling one share requires sending it back to a broker as the DRIP if it sells (most Computershare Canada DRIPs now sell through the PLAN). Most US companies, however, allow you to re-register "singles" by placing them in "safe-keeping" which puts them back into your account.
Should have read:

Selling one share requires sending it back to a broker as Canadian DRIPs if they sell (most Computershare Canada DRIPs now sell through the PLAN) will not allow you to put the single back into the account.

The single is still part of the DRIP the company just won't take it back. But there are always people wanting singles to get started. Thus our exchange boards.

OB
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Post by YogiBear »

Operabob wrote:Synthetic DRIP

Shares are not removed from broker account but broker offers a synthetic DRIP that mimics a pure DRIP to some extent.

E.G. XYZ trading at $40 pays you $50 dividend. You'll get ($50/$40) = 1.0 whole share added to your broker account. The 0.25 partial share you iwould have received in a pure DRIP will be paid as $10 cash in your broker account. You do not get total reinvestment of the dividend (not that that is a bad thing but is a topic for a whole chapter in my book. :lol: )
One exception is Canadian ShareOwner, where the "Synthetic DRIP" they run does reinvest all dividends, including partial shares (for free). The downside is that their plan only covers the stocks that they have chosen for their list- so if you want to "synthetically DRIP" something else, you are out of luck. They also do not have a SPP as such (but their commissions on multi-stock purchases on a per/ stock basis are quite low). Not a real DRIP + SPP, but very easy! :wink:
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