Pros and Cons of Using a DRIP for BMO InvestorLine Dividends

A Dividend Re-investment Plan, or DRIP, is a way to get paid dividends in shares in the company rather than in cash. This share purchase does not cost a fee. Often, there is also some incentive to the investor. For example, shares may be offered to purchase at a small discount to their usual price. BMO InvestorLine offers a DRIP plan to investors.


Real DRIPS versus Synthetic DRIPs

In a true DRIP, if the shares are held directly and managed personally with a transfer agent such as ComputerShare, you can often buy “partial” shares if the balance of your earned dividend will not buy another whole share. For example, if shares cost $10 and your dividend payment is $18, you would get one whole share, and 0.80 of another share.

Some online brokerages offer modified forms of DRIPs called synthetic DRIPs. The BMO InvestorLine synthetic DRIP is very similar to a DRIP, but there are a few differences.

PROS of a Synthetic DRIP with BMO InvestorLine

For beginning investors who have small accounts, a DRIP, synthetic or otherwise, can be a sensible and cost effective way to increase investment in a company. Because there is no commission or fee on the purchase of the new shares via the DRIP, it is possible for an investor to slowly increase their holdings for no cost.

A DRIP also gives a no-cost way to reinvest most of the money earned as dividends. For investors with small holdings, the small dividends would often not be reinvested quickly without the no-fee DRIP option.

Reinvesting monthly or quarterly when the dividends are paid also allows the investor to benefit from dollar cost averaging. If the price of the shares is down when the re-investment is made, then the investor will receive more shares. If the price is up, the investor will receive fewer shares. In theory, the investor should do better than if they simply purchase all the shares at one time, which might be at a time when the cost is high per share.

At BMO InvestorLine, you can choose to enroll none, some or all of your stock holdings in DRIPs, if they are eligible. You do not have to enroll all of your stocks if you don’t want to. For example, you could enroll your BMO and TD shares, but still receive cash dividends from your BCE and REI.UN holdings.

There is no cost to enroll in the BMO InvestorLine DRIP program.

Some popular companies that offer a DRIP through InvestorLine include:
BMO, BNS, CM (CIBC), RY, TD
ENB, SU, TRP
HR.UN, REI.UN
BCE. RCI.A, RCI.B, T, T.A

If you’d like to know whether a company is currently listed by BMO as offering a DRIP, and you are not an InvestorLine client, just post a comment and I will look it up for you.

CONS of a Synthetic DRIP with BMO InvestorLine

You cannot buy partial shares with a BMO InvestorLine synthetic DRIP. So in our example of $10 shares and a $18 dividend, you would receive 1 new share and $8 cash paid to your cash account. InvestorLine will buy as many whole shares as possible before paying the balance out as cash.

Not all companies offer a DRIP through BMO InvestorLine. (In fact, not all companies offer a DRIP any where. Some companies are not interested in offering this option to their investors.)

Some companies require a certain minimum number of shares before allowing an investor to enroll in a DRIP.

The BMO InvestorLine DRIP is only available to residents of Canada.

It is not easy to check whether a company is offering the same discount share purchase price to an investor using a real DRIP as to an investor using a BMO InvestorLine synthetic DRIP. It appears you would have to contact the Investor Relations department for each company you are interested in, and ask them. (Or, since there is no fee to enroll in the BMO InvestorLine DRIP, you could enroll, accept one DRIP dividend payment, and check the math to see whether the discount was applied.)

DRIP for US Securities held with BMO InvestorLine

At the time of writing, January 7, 2013, BMO states on its InvestorLine website that “At this time, US dollar denominated securities held with BMO InvestorLine are not eligible for the Dividend Reinvestment Program.” [http://www.bmoinvestorline.com/FAQs/FAQ_US_Dollar.html} I am checking whether this is still accurate, and asking whether I could DRIP stocks like Wal-Mart and McDonalds.

How to Enroll for DRIP via BMO InvestorLine

BMO states that you should first check with the investor relations department of a company to confirm that it offers a DRIP and to check what is the minimum number of shares the investor must own to qualify. That said, they do list on the BMO InvestorLine site a huge list of companies that offer DRIP.

To enroll in a DRIP for a specific stock, you must phone BMO InvestorLine and discuss it with an agent. The number to call within Canada is 1 888 776 6886. The hours are 8 to 8 Eastern Time, Monday to Friday.

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4 thoughts on “Pros and Cons of Using a DRIP for BMO InvestorLine Dividends

  1. I have an BMO InvestorLine account.
    I would really like to know why the BMO investorLine charges higher price to buy stocks when they reinvest dividend. To give you an example, when InvestorLine reinvests my dividend in extra shares of Potash, it charges a dollar more than the current market price of that stock. Pot 52 weeks high is $47.10, but when investorLine bought new shares for my dividends last month it charged $48.90 per share. Do you know why this discrepancy? Thanks.

    • Although POT is a Canadian company, it pays its dividend in US dollars.
      (You can see this on their website at http://www.potashcorp.com/investors/stock_information/dividend_history/ )
      I am almost certain that the problem you experienced has something to do with the US exchange rate charged by InvestorLine.

      I don’t think I can explain how they did the math because I don’t own this stock and I don’t have the details to work from. I strongly suggest you call or send them a message using MyLink to get them to explain the details of the transaction.

      Although they reported the purchase price as $48.90 that may just have been how they dealt with a foreign currency exchange fee or the actual exchange rate to convert your USD payment into CAD to buy more shares (assuming you are holding the stock in the CDN side of your account.).

      I do know that in general InvestorLine does NOT charge any fee or higher price to purchase a stock for a DRIP.

  2. So in the example you gave, once my cash goes over the share price and I have enough to buy another share, it will cost me a $10.00 brokerage fee to buy it?

    • Not if you enroll in their DRIP or dividend re-investment plan. If you enroll (for free) then the agent working for BMO will buy you one share and that one share and any extra cash will be deposited in to your brokerage account. There will be no fee. It may take a few days longer, though, than just receiving your dividend as only cash. For example, if the dividend cash is normally deposited in your account on May 1, it may take till May 7 to see your one new share and your bit of extra cash appear in your My Holdings view. The delay is sometimes shorter. I hope this helps a bit.

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