Friday, March 24, 2023

Dividend Reinvestment Plans Are Not For Me

Every November when it comes time to renew the domain name for this blog, I promise myself that I'll write more in the new year. My best intentions usually lose steam in late January or early February. In order to recreate the spark, here is the second of what could best be described as 15 30-minute, quantity over quality, blog entries. 

     Many dividend growth investors choose to use dividend reinvestment plans (“DRIPs”) to add shares to their positions instead of receiving their dividends in cash. With some DRIP programs offering shares at a discount to the current share price, and given the long-term objective to grow large positions in certain companies, it can make sense to leverage these plans. However, I’ve made a choice never to use DRIPs in order to avoid complexity and maximize financial flexibility.

     Having complained about my discount brokerage many times over the years (never create an account with Scotia iTrade), and looking to keep my interactions with them at a bare minimum, not using DRIPs makes sense for me. Having to register shares for a company’s DRIP program, or even using a synthetic DRIP provided through iTrade, I’m happy to use the month or two it usually takes my brokerage to respond to requests in more productive ways. Plus, any DRIPs I started for positions in my unregistered account would entail me keeping track of the adjusted cost base of shares, given I have no faith in iTrade’s calculations based on past negative experiences. As I’ve gotten older, and had kids, I’ve learned that sometimes avoiding complex situations is important to maintaining my sanity.

     In my opinion, the best thing about being a dividend growth investor is the growing cashflows that appear in your investment account each month. Given my preference to make one or two purchases a month, I choose to retain control over my investment process and decide which companies are the best use of cash each month. Investors act as the Chief Investment Officer of their respective portfolios, and their most essential duty is deciding how to best allocate capital. When a share price shoots up prior to a dividend payment, adding more to a potentially inflated position wouldn’t leave me with a good feeling; nor would adding to a position that was on a losing streak. Receiving cash each month provides me with optionality in how I choose to allocate it in congruence with my current goals and the realities of the financial markets.

     Although avoiding complexity and maximizing financial flexibility are good enough reasons for me not to use DRIPs, I can see how they might be great for younger investors, with different goals, and better brokerages to pursue those plans. There might come a time when I rethink participating in DRIPs, but for now, I’ll keep receiving my dividends and distributions in cash. 

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