One of the many ways to grow your investments is by reinvesting dividends. In this video, we explain what a Dividend Reinvestment Plan (DRIP) is and how it may impact your portfolio.
Many companies share profits with their shareholders, which are paid out as cash dividends. Using the DRIP program offered by their online brokers, shareholders can reinvest the dividends to automatically buy additional shares of the same company. This provides investors an easy way to accumulate more shares without having to pay any commission. Hence, DRIP not only allows you to participate in a company's growth on a regular basis, it also takes advantage of dollar-cost averaging (DCA) technique that averages out the price at which you buy stocks as they move up or down.
However, it's important to note that you can only reinvest the cash dividends received from eligible stocks (or securities) in your account to purchase additional shares. Additionally, the dividends paid into DRIPs are taxed as ordinary dividends and must be reported in your tax returns, even though they are used to purchase shares.
DRIP at TD Direct Investing
You can set up a DRIP for your entire account as well as for individual securities. Once you set up a DRIP, the cash dividend is automatically reinvested.
A few notes to keep in mind:
To set up a DRIP in your TD Direct Investing account, contact an Investment Representative at 1-800-465-5463 or (416) 982-7686.
We offer two services for self-directed investors: TD Direct Investing with a variety of platforms and advanced tools; and TD Easy Trade TM , a simple, streamlined, mobile-only, trading app.
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Did you know that you can enter the market even if you don't have a lot of money to invest? Dollar cost averaging is an investing technique that can help you do just that.
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You've heard of the snowball effect, right?
A small snowball rolling down a hill gradually becomes a massive snow boulder – and demolishes your little brother standing in its way.
Good times!
Well, there's something just like it for your portfolio – and it can be just as rewarding.
I'm talking about a Dividend Reinvestment Plan, or "DRIP" for short.
It's a perk some dividend-paying companies offer shareholders and some brokers including TD Direct Investing.
Usually, investors receive their dividends as either a cheque or cash into their accounts.
But a DRIP takes their dividend payouts and uses them to automatically buy new shares instead, without commissions.
As a result of compounding, the shareholder gradually grows their position over time without having to do anything.
Sometimes, companies even offer DRIP shares at a discounted price.
But the real appeal is that snowball effect:
With each dividend payout, investors acquire more and more shares, which may lead to an even larger payout next time!
But like a snow boulder barreling down a hill, a DRIP can demolish a portfolio's desired asset mix.
So, some rebalancing might be needed from time to time.
Investors can enroll in a DRIP directly through the companies and brokers that offer them.
Call us at TD Direct Investing to see if the stocks you hold are eligible.
