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 of 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.

Written: 2014
Reviewed: 2023
Revised: 2023

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 CNR holdings.

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

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.)

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 can 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. (In 2021, they had an online method being tested to allow enrollment but it seems to have been discontinued in 2022.)

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Using Dividend Paying Stocks to Create Monthly Income

If you are trying to live off of your investments, you might want to try to have some new income coming in each month, rather than once a year or once every quarter. CPP, OAS, GIS, many annuities and most pensions pay monthly. It’s also possible to have some of the income from your investments pay monthly.

Written: 2012
Reviewed: 2023
Revised: 2023

Canadian Dividend Stocks that pay a Monthly Distribution

Many of the stocks that pay a dividend or distribution monthly are targeting the needs of people requiring a monthly income. They are often stocks that don’t offer huge potential to increase in capital value, but which can provide a steady, modest profit.

The industries these companies are in can vary widely.

Diversifying a Canadian Monthly Dividend Stock Portfolio

Uniforms
K-Bro Linen Systems (KBL) is a Canadian stock that pays a monthly dividend. This is one of those companies that keeps beavering away behind the scenes without most of us noticing them. They provide, wash and deliver linens including uniforms to many businesses across Canada. They started as a diaper washing service. Now they provide clean uniforms and bed linens to many major hospitals and other industries. But just as few people launder diapers nowadays, there is no guarantee that companies will continue to require a laundry service for their uniforms and linens.

So I’m not saying buy KBL. I’m just stating a fact: it pays a nice monthly dividend. And it’s in quite a different area of business than, say, A&W.

Mortgages
Firm Capital Mortgage Investment (FC) is another Canadian stock that pays a monthly distribution. According to their company website, Firm Capital “is a non-bank lender providing residential and commercial real estate finance.”

You’d have to look at the details on the company to see if you think their strategy is sound and whether it meets your ethical criteria. And, as anyone who invested in US real estate in the 2000s knows, supplying mortgages can be a risky business. Don’t buy shares in FC without investigating it yourself and understanding the risks.

UPDATE: Also be aware that as interest rates start to climb, companies that deal in mortgages may drop in value for reasons I don’t fully understand but which I have read more knowledgeable analysts talk about. Do your research!

Fast Food
Several of the fast food businesses are available as stocks that pay monthly distributions. These payments may be dividends, non-eligible dividends, interest or return of capital. You have to check the details before deciding if the investment is a good fit for you.

One example is A&W. Yes, shares in the root beer and burger chain are sold on the TSX under the symbol AW.UN. Distributions are paid monthly.

You have to decide for yourself whether they are financially stable and whether selling fast food which could potentially be unhealthy is ethically acceptable to you. I’m just saying the shares are out there.

Linens, mortgages and fast food. While I’m sure these all tie together somehow, they are not 3 stocks in the exact same category of business. So as you can see, you can diversity your holdings into various parts of the market, while still earning a monthly income.

Movies
There was a time when Cineplex paid a dividend. Alas not in 2023.

Disclaimer
I’m not saying “buy these stocks.” I’m just saying these are examples of Canadian stocks that pay monthly distributions. Do your research, or hire someone trustworthy to do it for you. I just want you to know there are choices out there that may meet your needs nicely.

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