One way to use dividends from stocks and ETFs is to reinvest them by purchasing more of the same stock or fund. If this is done automatically it is called a Dividend Re-investment Plan or DRIP. There are pros and cons to setting up a DRIP for your investments in a CIBC Investor’s Edge self directed account. Investor’s Edge calls their DRIP program the ShareBuilder Plan.
Pros of a Synthetic DRIP with the CIBC Investor’s Edge ShareBuilder Plan
There is no fee to join or use the ShareBuilder Plan to reinvest dividends earned by the investments in your CIBC Investor’s Edge account.
One of the key benefits of a DRIP is that you do not pay any fee or commission to purchase new shares of a stock or ETF that you already own. This saves you the commission, which is often $6.95 or higher for an Investor’s Edge account. This can allow an investor who is starting with a small number of shares to gradually increase their holdings at no cost.
Prompt Reinvestment Puts Your Money Back to Work Fast
For small share purchases the commission can be a deterrent to reinvesting your dividends promptly. The cost-free DRIP program encourages you to get your earnings back to work immediately. This can be an advantage for investors whose dividend payments are so small that paying a commission to buy new stock to reinvest those same dividends would not be practical. For example, if an investor is only receiving $36 from a dividend payment, paying $9.95 to re-invest it might not be reasonable.
Share Price Discounts
Some companies also encourage investors to DRIP their dividends by offering shares at a discount to their trading price. For example, at the time this was written, you could buy Enbridge shares (ENB) at a 2% discount off their trading price. If you use the ShareBuilder Plan you are also eligible to receive these discounts. (Specifically, the Enbridge document states shares purchased “with reinvested dividends will be 98% of the weighted average of the trading prices for Common Shares on The Toronto Stock Exchange on the five trading days preceding a dividend payment date.” This discount is subject to change at any time by Enbridge.)
You Choose to Enroll All or Only Select Stocks in the DRIP
With the ShareBuilder Plan you can choose to enroll at the account level. If you do, all stocks you hold that are eligible for a DRIP will be enrolled in the CIBC synthetic DRIP. OR you can enroll individual securities in the ShareBuilder Plan. That means if you want, you can pick and choose which stocks will DRIP and which stocks will receive cash dividends. (This flexibility is valuable if you need cash flow, or if you do not want to increase your holding in certain specific companies but you do in others.)
You Can DRIP US Securities with CIBC Investor’s Edge ShareBuilder Plan
Unlike BMO InvestorLine, CIBC Investor’s Edge allows you to DRIP US securities. For more information, please see Can I DRIP US Stocks from a CIBC Investor’s Edge Self Directed Account?
Dollar Cost Averaging
You don’t hear as much about this investment philosophy anymore, but it might be of interest. The price of a stock may vary both upwards and downwards during the course of a year. If the stock pays dividends quarterly or monthly and those dividends are reinvested through a DRIP, then the investor would be paying both high and low prices. When the price is low, the investor would get more shares for the same amount of money than when the price is high. The idea is that dollar cost averaging reduces the risk that you would buy all your stock at the same moment that the stock is at an all –time high price.
Cons of a Synthetic DRIP with the CIBC Investor’s Edge ShareBuilder Plan
No Fractional Shares
The ShareBuilder Plan offered by Investor’s Edge, like that of most self directed brokerages, is a synthetic DRIP. You can use your dividend payment to purchase new shares but only to purchase whole shares. You cannot buy a fraction of a share within a synthetic DRIP. (If you enroll directly in a DRIP with the transfer agent for a stock as the registered holder of the shares you can actually buy fractional shares.)
So if your dividend pays $176 and the price of a share in the company is $81, you can buy two shares. The $14 balance of your dividend payment will be deposited into your Investor’s Edge account as cash.
CIBC confirmed this in their email response to me stating, “Excess amounts will not be accumulated or carried forward for the next month’s dividend.” So you can’t just hold the $14 until the next dividend date and reinvest it then for free. You will just receive the $14 immediately as cash.
This means if you have a very small holding of stock and it pays a low dividend, you may not be eligible to purchase ANY shares through a DRIP. You might want to do the math to check before enrolling in a DRIP. (Divide the dollar value of a single (not annual) expected dividend payment by the price of a single share to see approximately how many shares you can purchase.)
Only Certain Holdings are Eligible for the ShareBuilder Plan DRIP
CIBC advised me by email that ”Eligible securities include all dividend-paying securities listed on the TSX 300 and S&P 500….[Please] check with us regarding individual securities.”
That means you should be able to DRIP many popular companies including:
BMO, BNS, CM (CIBC), RY, TD
ENB, SU, TRP
BCE. RCI.B, T
Not all companies offer a DRIP through the ShareBuilder Plan. (In fact, not all companies offer a DRIP at all.)
You must have a certain minimum number of shares before enrolling in a DRIP if the company requires this.
How to Enroll for DRIP Using the CIBC Investor’s Edge ShareBuilder Plan
You may enroll in the ShareBuilder plan at the account level. If you do, all eligible securities will be DRIPped.
You may also choose to enroll only select securities in the DRIP ShareBuilder Plan.
CIBC advised in their email to me that, “To enroll in the ShareBuilder Plan, please call our Contact Centre…. at 1-800-567-3343 (Monday to Friday, 8 am to 8 pm ET).”
- Can I DRIP US Stocks from a CIBC Investor’s Edge Self Directed Account?
- Details about the Enbridge DRIP
Have you set up a DRIP for any of your Investor’s Edge stocks? Please share your experiences with a comment.