The Slow DRIP to Massive Wealth

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Back in the 1980s and 90s a company advertised heavily promoting dividend reinvestment plans (DRIPs). The commercial looked like a staged radio show with a woman telling the audience no one has an incentive to promote these great programs to invest in the biggest companies in America.

I don’t know if the companies with DRIPs had an incentive or not to promote them. They were usually a commission free way to invest in dividend paying stocks. All I know is the woman in the commercial had plenty of reasons to promote these programs.

Her company provided the conduit into DRIP investing. DRIPs usually required one share to start. The woman’s company charged $15 or $20 per stock to get you set up. You paid for one share of stock in the company you were interested in plus their fee and waa laa, you were in.

After that you could send money in any amount within the guidelines of the DRIP you were invested. Dividends were also reinvested. This meant you had fractional shares of the companies you invested in. That wasn’t an issue to me. The real advantage was the ease at investing money as I had it.

It’s been a long time since I watched TV so I don’t know if the company I saw all those years ago is still around or advertising. Time has washed my memory of the company’s name handling this.

I ordered their packet with a booklet of all the companies with a DRIP. I did something stupid then. I picked 12 brand name companies without any real research and ordered my one share of stock so I could add commission free any time I wanted.

Trading commissions seem low now, but back then it could add up. Also, buying $1,000 of stock meant a small commission was still a large percentage of the investment so the DRIP idea made a world of sense to me.

I already owned Philip Morris (now Altria) at the time and MO was my first DRIP selection so I could compound those massive and growing dividends. Some choices were good, some not so much. I joke I’d rather be lucky than good any day of the week. Johnson & Johnson, Wrigley (more on this pick in a moment), ITW, Paychex and Alfac were solid choices. Wrigley was special. Every year they not only increased their dividend, but also sent a box of gum each year around Christmas. Then Warren Buffett gave Mars Corporation the money they needed to buy Wrigley for cash. There went my free box of gum each year and juicy dividend stream. If you’re reading this Warren, Go to hell!

I made some bad choices too. I bought General Electric. The stock had a good run back in the day, but underperformed long before the current debacle.




A Blind Sow Finds an Acorn Once in Awhile

While the Hershey’s DRIP investment did well, other languished. My goal was to pick well known brands with a history of increasing dividends. When I say I did no research that is a bit of an exaggeration. I research by default without even trying. I had an idea which companies I’d be buying. All I needed to know was if they had a DRIP.

Prior to the DRIP plan part of my investing life I kept my brokerage account with Valley Bank, a local bank since bought out. I also owned mutual funds at American Funds. I put virtually all my money in Growth & Income. There were other brokerages around, but the local bank has nearly identical commissions and I could walk into their discount brokerage office any time I wanted.

My investments always seemed to do well, especially if you waited out the few temporary market setbacks during the last thirty or so years. A few dogs reared their ugly head, but then it was back to the steady climb higher.

The DRIP put my investing into hyper-drive. Now I could invest anytime I had $25 or $50. I sent checks to several DRIPs I participated in every month; sometimes multiple times a month. It was an addiction watching the share balance grow.

The only problem I saw with DRIP investing was recordkeeping. If a guy started selling and buying often tracking basis would become a nightmare.

I never sold so all I needed to do was track the purchases and reinvested dividends. I entered all the data in an Excel worksheet. I remember days when I highlighted data and created charts with a jagged line trendingupward at an ever steeper rate. Every dividend increase created a jag higher in the number of shares owned. Each quarterly reinvested dividend was a pay increase as the new shares created a slight increase in the total dividend received the following quarter.

This jagged line racing to the moon encouraged me to add money the second it graced my paw. I became so frugal I was spending under $10,000 per year, including my mortgage! It was the 1990s and early 2000s, but that was still some mighty frugal lifestyle. I never let on why I was so tight with my money to Mrs. Accountant, but now that I’ll read this to her prior to publishing I might have a bit of explaining to do. All I can tell you, kind readers, is it was better than sex watching those share totals climb relentlessly.

Some would argue I needed therapy back then. I’d agree. There is ample evidence I need therapy now, too. My living expenses climbed slightly over the years to placate Mrs. Accountant and to stop being “an embarrassment to the family,” as my parents made my lifestyle choices clear to me were.

But, boy did I amass a fortune in the process!




DRIP Drop

Eventually the recordkeeping got old. Some stocks needed to be disposed of so I winnowed the list. Wrigley was stolen from me. (I’m still pissed at Warren. Jesus, guy! Didn’t you have anything better to do with your time?)

Valley Bank and their brokerage arm were long a part of history. I moved a large chunk of money to E-Trade and eventually found most of my mutual fund investments finding fertile ground at Vanguard.

I hadn’t added to my DRIP list in well over a decade, but kept adding new monies to legacy DRIP accounts. The erotic nature of watching my share balance climb still thrilled me if only I didn’t have to do so much recordkeeping by hand. All the DRIPs were moved to E-Trade. Dividends now accumulated in cash. I invested the funds when I felt the right opportunity graced my vision.

I still added excess cash to the deck, but my lazy nature was asserting itself. Cash kept piling into index funds. My guess is Vanguard considers me a quality client.

E-Trade holds several accounts for me. One is a mad money account where I can play with ideas and do really stupid stuff with $50,000 or so. They also hold two minor retirement accounts (it’s a long story). Then I have my serious money in individual stocks.

The market has been so good for so long the mad money account is turning more serious.

The serious money account is disturbing the account balance is so high. My net worth figures floating around the internet from a while back is getting outdated and low. I’m waiting for a nice correction back to reality so I’m not updating my net worth publically for now.




A DRIP of Honey

I miss my DRIP investing days. It also irritates me my Atria, Philip Morris International, Aflac, Wells Fargo and Apple dividends are not reinvested. I don’t get a pay increase four times a year anymore and it hurts my feelings. Kind readers, you have no idea what a spectacle a crying accountant is!

Dividends eventually get reinvested, but there is a small commission to buy stock even at E-Trade. Cash sometimes piles up like currently. (I can’t pull the trigger buying companies when stock prices exceed my valuation of the company plus a margin of safety.)

E-Trade has been redesigning their site lately. They messed around with the Portfolio page a few times this year. The latest redesign has a button near the ticker symbol on the Portfolio page where if you hover over it basic information on the company pops up. It’s an interesting tab if you obsess about every friggen tick of the stock price. Otherwise, it lists the latest news items, a stock price chart and not much else of value.

Or so I thought!

Earlier this week I was checking up on my account and accidentally hovered my mouse over the icon on the Portfolio page. I quickly went to move away when something caught my eye.

There was something about a dividend reinvestment plan!

I went to work checking this out. My guess is this has been available on E-Trade since 1894, but I was too stupid to know about it or even inquire.

On E-Trade the dividend reinvestment plan is commission free(!) on reinvested dividends only. You still pay a small commission for original stock purchases. To be clear, only the reinvested dividends are commission free.

Trading fees are so low nowadays as to be background noise at best on a cloudy day. My excitement isn’t about saving $10 or so. My excitement is over the automated process of reinvesting dividends.

Most people get caught up in their account value. Not me. I collect shares! My share total never goes down unless I make it go down by selling. When dividends are automatically reinvested it turns dividends into a compound wealth machine. And each quarter the dividends are reinvested means I have more shares earning even more dividends the next quarter. It’s like getting a pay increase four times a year!

Now I’m excited again.

E-Trade allows fractional shares with their DRIP, just like the old DRIPs I used. All my money goes to work immediately!

As many of you know, I have a lot of Altria and Philip Morris International. Altria alone coughs up twenty-four and change each quarter. This means the DRIP at E-Trade will increase my dividend with Altria several hundred dollars each quarter without Altria increasing their dividend.

I know somebody in the crowd will tell me to settle down, saying, “Accountant, this has been around since Christ walked the green earth.” Maybe so, but it’s new to me! And I bet if it’s new to me it’s probably new to a few readers as well.

I can feel the sickness returning. Soon I can produce charts again with a jagged line crawling to the stars.

Only this time E-Trade will do all the recordkeeping for me.



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Keith Schroeder

21 Comments

  1. Josh on December 15, 2017 at 8:11 am

    Welcome to the lazy DRIP club! I do the same over at sharebuilder, only with them you can also buy fractional shares from the get-go.

    Here’s how it works:
    1 – send money to your account
    2 – add stocks to your automatic investment plan
    3 – wait for Tuesday to roll around
    4 – the company will buy your stock on Tuesday
    5 – default everything to reinvest dividends

    To be clear, each week, month, or one-time, you can buy $1,000 of MO, or $500 of MO and $500 of PM, or break it up how you wish. You’ll pay only $3.95 per stock purchase, which is a discount to the normal commission of $6.95. This also allows to buy higher priced stocks easily.

    Also, check out both O and STAG, which each pay dividends MONTHLY. They are REITS, so taxes and yadda yadda.

    • Keith Schroeder on December 15, 2017 at 9:14 am

      This is the best part of this blog, Josh. Readers have experiences I haven’t and share them. You don’t know how often I use reader’s comments as a resource. Thanks for sharing (pun intended).

    • Mike on December 15, 2017 at 6:41 pm

      Thanks for the overview, Josh. I’ve looked at sharebuilder before and will have to take a closer look about their timing/scheduling options.

      Another site I recently came across in an article in Forbes is M1 Finance: https://www.m1finance.com/

      I haven’t looked specifically at their DRIP capability / options yet, but they appear to offer the ability to construct certain portfolios that can have their dividends reinvested as you allocate and/or set-up rules (still need to review this further).

  2. Charles on December 15, 2017 at 8:43 am

    Keith doesn’t Vanguard reinvest dividends for free?

    Considering your Flagship status, I know you get commission free trades. Wouldn’t those dividends for a client with a Vanguard brokerage and Flagship status, getting free dividend reinvestment?

    • Keith Schroeder on December 15, 2017 at 9:13 am

      Yes, Vanguard and all mutual funds I’m aware of reinvest dividends without a fee, Charles. Yes, Vanguard brokerage does the same.

      My point isn’t about reinvesting dividends here. You always have to consider I’m making a more subtle point. Reinvesting dividends automatically might not be the best choice. I noticed DRIPs had a slightly worse purchase price than expected due to the bid-ask spread and what I suspect is fees wrapped inside the reinvestment purchase.

      My real point here is to forget about the daily value of your portfolio, it’ll drive you crazy. You risk an emotional break in a down market, selling at the worst possible time. Instead, focus on the number of shares. The only way that goes down is if you sell, something only you control. An addiction to watching your share balance increase is a good habit to have. Mutual funds do this easily and automatically, but then I wouldn’t have much of a blog then, would I? My way of presenting this concept was a meal and a show.

      And people are always interested in all the crazy things I’ve done in my financial life. You also may have noticed I never mentioned I was signing up for E-Trade’s dividend reinvestment program because I’m not. It was just a tool to segue into a story arc.

  3. Dividend Growth Investor on December 15, 2017 at 9:00 am

    I love dividends 😉 I enjoyed your story about DRIPS. Some companies also offer discounts on the purchase price if you enroll in their DRIPS

    Most brokers reinvest dividends for free. The thing to keep an eye out is the price at which they do it – I have the same company type in several brokerage accounts and they all reinvest the dividend at different prices..

    So I actually reinvest dividends selectively – meaning if I buy shares in $1000 increments, I wait till my dividend income and new capital reaches that amount, before I allocate it to the best value/s I could find.

    • Keith Schroeder on December 15, 2017 at 9:18 am

      I forgot about that, DGI! Readers will love this!

  4. Charles on December 15, 2017 at 9:18 am

    Keith I just confirmed Vanguard will reinvest dividends for free. Even fractional shares.

    FWIW, maybe it would be worth it you to consolidate everything at Vanguard.

    • Keith Schroeder on December 15, 2017 at 9:22 am

      You are right, of course, Charles, but do you know how hard it is to teach a dog a new trick? For the record I am one mighty old dog set in his ways?

      Funny thing, I have a Vanguard brokerage for non-qualified index fund investments. And I do know how easy it is to transfer from E-Trade to Vanguard. It’s just the old dog thing.

      One thing about this blog: Do as I say not as I do. They don’t keep a straight jacket at the ready in the office for no reason.

  5. Andy on December 15, 2017 at 9:47 am

    Keith,

    I really like the psychological affect of buying shares instead of paying attention to the balance. I explain to my wife and my best friend an analogy of buying workers for every company we own in the index funds. The workers/employees work hard to grow the company and increase profits. The more workers we buy the more time they’ll put into working hard to make owners/shareholders more money to buy more workers etc… My wife now gets it because of that analogy. This sounds bad so please forgive me. If you’re working for a bad employer or a bad boss, the only way to get ethical way of getting revenge is achieving financial independence. The day you leave your employer you can leave knowing they’re now working hard to fatten your wallet in an indirect way while you’re out doing something you enjoy.

  6. John on December 15, 2017 at 10:30 am

    Great article on dividend reinvestment! I have all my stocks setup to DRiP at Fidelity and get so excited every time I add fractional shares. Just today I added more fractional shares of – MCD, UL, KO, and ED in my portfolio. Let’s just say Christmas came early!

    • Keith Schroeder on December 15, 2017 at 10:35 am

      Not only early, John, but often. Four times a year to be exact for each DRIP.

  7. Jamie V on December 15, 2017 at 10:34 am

    Great article on DRIPs. I just learned about them last year when paying the common stock dividend reinvestments became my job where I work. On the back end, total PITA (big sigh), but for the client, yes it’s such a great idea! I’ve watched some of these grow and grow, and it’s really nice to be able to see all these examples of reinvesting income working out so nicely for the clients. I like to imagine we’re all working towards the same goal, and these people are just a few years ahead of me. (so keep on it, Jamie!) 🙂

  8. MarcosG on December 15, 2017 at 12:11 pm

    I love dividends too!

    If you dont want to pay commisions when buying stocks, there is 2 options:

    Merryll Edge… i believe that it is 30 free trades a month with 50.000 in assets

    Interactive Brokers, 0.20 to 0.40 each trade.

    Keep the good work!

  9. Financial Rookie on December 15, 2017 at 1:49 pm

    Robinhood is a new app offering commission free trades. I just started using it about a month ago and have been happy with the functionality of it. No bells and whistles and currently it does not offer DRIPs at this time but I wouldn’t doubt if they did in the future. They are new and growing their platform.

  10. Dan on December 15, 2017 at 4:55 pm

    INice to know I’m not the only former long time Wrigley DRIP shareholder who is slightly perturbed by Warren stealing away my little gold mine. Sure miss the boxes of free gum!😀

  11. Dallas on December 16, 2017 at 5:43 am

    The MONEYPAPER….it was called the MONEYPAPER !! I got started thru them. Aflac and GE was 1 of my first purchases. I got out of GE years ago…but STILL have Aflac !
    I also owned a baby bell called U.S. West for a few years but I “think ” it got bought out by Enron, I sold that….and GLAD I did 🙂

    • Keith Schroeder on December 16, 2017 at 9:02 am

      Thanks for jogging my memory, Dallas. It was the MONEYPAPER.

  12. Camille A on December 18, 2017 at 11:04 am

    Thanks for this article! My father introduced me to dividend re-investment plans when I was a little girl, but I didn’t get serious with them as an adult until roughly 7 years ago. Currently, my portfolio produces ~$1000 in dividends every month. Since I’m not yet retired, I DRIP all my dividends every month for free. My brokerage doesn’t allow me to purchase fractional shares through the DRIP so I simply re-invest the “leftover” dividend amounts with my monthly investment purchase. In my humble opinion, the DRIP ought to be taught to children in primary school when they first learn about compound interest! I am not a sophisticated investor so perhaps that is why I don’t understand why everyone doesn’t invest in DRIPs. It’s money making money without any extra effort. Why wouldn’t a person want to get in on this action?

  13. FJ Menendez on December 26, 2017 at 10:37 pm

    Great post…. I opened my two boys ugma accounts and set up DRIPS for BAC, T, LEN, C, DIS, MSFT, and a few others….it’s amazing how well their AT&T position has done in terms of share growth. I agree Camille, this should be taught at early ages. I’ve been teaching my kids since they were about 6 and 8 years old. I even had them cue up their first trade of Facebook stock at $22. Start ’em young I always say.

  14. Damn Millennial on December 29, 2017 at 11:08 am

    DRIP investing is great. I elect all of my holdings in TD Ameritrade to do the same thing. It really adds up and is a nice free service.

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