How To Set Up a Dividend Reinvestment Plan (DRiP)

In my previous posts, I wrote about the two types of dividend reinvestment plans (DRIP), explored their features and looked at their advantages and disadvantages. In this post, I want to look at how one goes about setting up a DRIP.

To set up a synthetic DRIP is actually quite easy but first requires that one have a brokerage account. If you have a discount brokerage account with TD Waterhouse, for instance, like I do, they can set up a synthetic DRIP for an individual company or your entire account. All it takes is a phone call and a representative will get your account information and set it up for you over the phone.

To set up a true DRIP will take a little longer, usually a few weeks, and is much more involved than setting up a synthetic DRIP, but totally worth it in my opinion. The two main transfer agents are Canadian Stock Transfer (CST) and Computershare. If you visit their websites you’ll find a list of companies that offer DRIPs and SPPs as well as information about how to enroll in the plan, minimum cash contribution amounts etc.

To enroll in a DRIP from a transfer agent you’ll first need to own at least 1 share certificate of the company you wish to drip. If you have a discount brokerage account you can request a share certificate for any company that you currently own, or else you’ll have to purchase the 1 share in that account and pay the commission.

Typically discount brokerages charge a fee of $50 for each company that they issue a share certificate for. If you plan on dripping a dozen or so companies that fee can quickly add up and become quite expensive. Since drippers are typically conscious about their investment fees and expenses my guess would be that few people actually go the brokerage route to acquire their first share.

A cheaper alternative is to visit the DRIP Investing Resource Center at www.dripinvesting.org. On the homepage you can click on Community and this will take you to the site’s message boards. One message board is called the Share Exchange and this is where you need to go to get your starter shares. Before posting anything on the Share Exchange board it is recommended that you read the “share exchange guidelines.”

Once you’ve read through the guidelines you can create a username and password for the exchange board and post a message stating that you are looking for 1 starter share in company XYZ. Oftentimes you can find people posting messages about shares they are selling. If someone is selling a share you wish to purchase just send the person a message and in most cases that person will be able to walk you through the purchasing process.

The process involves paying the seller the previous day’s closing price for the share (or whatever your agreed upon price is) plus a $10 courtesy fee as it will involve the seller filling out paperwork and mailing it to the transfer agents. While there is an element of risk involved, I can say that my experience on the share exchange board was a positive one.

I had excellent dealings with all the sellers who I purchased shares from. Many of them were regulars on the exchange board and were very helpful to me as a newcomer. If you are at all unsure or are ever in doubt with any prospective seller, you could simply post a “reputation check” for that particular seller.

As the process to set up a true DRIP can take a few weeks most sellers will keep in touch during that time; letting you know, for instance, if they can see that the share has been withdrawn from their account. Once the share has left their account you should receive your certificate within a week. In my experience the transfer agents always mailed me the share directly, however I have heard of certain instances where the share was mailed to the seller who then forwarded it on to the buyer.

Typically the transfer agents will send you two important pieces of paper. The first is the actual share certificate that contains your share registration number and the second is a paper that contains your account number. It is important to know that your account number is not the share registration number. With those two key pieces of information you can call the transfer agent to set up your online account.

It may take a couple of business days for them to create the online account and for you to be able to access it. Once you have online access to your account you can enroll your certificated share in the DRIP. In addition to the online enrollment, both Computershare and CST have enrollment forms available on their websites. You will need to print them off, fill them out and mail them to the transfer agents.

It is important that you actually send in the forms to the transfer agents because they will require your SIN and additional information to fulfill the government’s anti-money laundering regulatory requirements. Now that you have set up the account and completed the required documentation, you can now send in cheques for the OCP or set up a pre-authorized payment plan for certain companies if you have your account with Computershare.

See my other posts on dividend reinvestment plans (DRIPs):

What are Dividend Reinvestment Plans (DRIPs)?

Dividend Reinvestment Plans (DRIPs): Their Advantages and Disadvantages

Dividend Reinvestment Plans: What Are The Best Companies to DRIP?

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