Regular readers of Boomer and Echo know we are very enthusiastic about dividend investing.
This strategy falls out of favour from time to time. Large dividend paying companies are generally slow growing – you need to hold them for the long term.
“Buy and hold” strategies also fall out of favour in periods of good market growth for the same reason. They are just not as exciting as Apple or Silver Wheaton that have fast growth potential.
How I started dividend investing
I started dividend investing unwittingly when I joined my employer’s Employee Savings Plan. My employer, being a bank, paid their matching portion to me in the form of shares. Each pay deduction purchased a partial share which, in turn, earned dividends, and the share certificates were mine to do as I wished after a three-year vesting period.
I have to admit that the quarterly $0.80 dividend cheque (post-dated, no less) was not too exciting at first, but I kept collecting share certificates, and eventually came to realize the potential in this type of investing.
How do you start?
If you are interested in dividend investing, how do you get your first shares when you have only a couple of hundred dollars a month to invest?
You can open a discount brokerage account, but with trading fees of $4.95 – $29, account fees for registered accounts and other possible charges for low activity or inactivity, you’re spending your money on fees rather than building your portfolio.
You can bypass the discount broker and use a transfer agent.
Getting your first share
Start by choosing a quality company with long-term prospects. Go to DripPrimer.ca for a list of likely candidates.
Related: How To Set Up A DRIP
You want a company that offers both DRIPs (Dividend Reinvestment Plan) and SSPs (Share Purchase Plan). Make sure there are no fees for participating in the program.
Canadian companies generally don’t charge fees while some U.S. companies do. I recommend starting out with a Canadian company.
Then go the DRIP Investing Resource Centre. This is a share exchange board where people will offer to sell you one of their shares.
If you don’t see what you’re interested in, type a message detailing which company you would like to invest in and include your email address. Look at the current messages for guidance on wording.
When you find someone willing to sell you a share, you then pay them the cost of the share (the closing price on the date agreed on) plus a $10 “courtesy” fee. Send that person a cheque for the cost and include a self-addressed envelope.
Make sure you specify the exact name your want the share to be registered in.
The Transfer Agent
Now that you have your first share go to the transfer agent’s website. Your two options are:
- Computershare, or
- CIBC Mellon
On the transfer agent’s website:
- Go to the company you just purchased
- Download the DRIP/SPP forms
- Find out the minimum SPP amount
Fill out the forms and send them with your share certificate and a cheque to the transfer agent. The cheque should be for an amount slightly more than the share value and at least equal to the minimum SPP amount.
After all the forms are processed, you will receive a share certificate in your name. You will also receive confirmation of the DRIP enrollment and how many shares (and fractional shares) your cheque purchased through the SPP.
Related: Beat Inflation With Rising Dividends
Now you can send in a cheque whenever you want. Some companies will accept cheques monthly and some are quarterly. Your dividends will automatically be reinvested – forever.
Building your portfolio
You can trade your share for one in a different company (you don’t need it any more) and complete the process all over again.
Invest your money regularly using dollar cost averaging, and you will gradually build up your portfolio.
You will not have to pay any fees. Every dollar is kept in your account adding and compounding over time – absolutely free.
Consolidating your holdings
Once you’ve built up a sizeable amount in a number of companies and you’re investing more money every month, you can then consolidate your holdings and open a discount brokerage account.
With the account, the number of available stocks you can invest in increases and you can build a stronger, more diversified portfolio, possibly including companies that might not offer DRIPs or SSPs, when the price is right.
Related: Canadian Dividend Aristocrats
Contact your transfer agent and ask for a share certificate for each company. Be sure to keep at least one share with the transfer agent so you can still participate in their DRIP and SPP programs if you want. Plus brokerages won’t accept fractional shares.
Deposit your shares into the brokerage account.
Dividends will now be paid in cash to the account.
My investment goal was largely to build an income-producing portfolio and it’s been a work in progress over a long time.
This process may seem complicated, but it’s actually harder to explain than to do it.
It takes a bit of time and effort. Be patient.