Dividend investing: directly, using dividend funds or in a dividend reinvestment plan

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Dividend investing: directly, using dividend funds or in a dividend reinvestment plan

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Broker or synthetic dividend reinvestment plans

In a DRP-S you buy shares through a broker, and the broker enrolls you to reinvest dividends to purchase additional shares; see Broker DRIP plans on the site StingyInvestor .

It may be easier to reinvest through your broker rather than enrolling in various different DRP plans; see BetterInvesting
(or as a PDF doc.1546), but see DripInvesting (or as a PDF doc.1547). Also, apparently many (if not all) reinvestment plans do not allow investors to buy additional shares with optional cash amounts (this option is often available if you are directly enrolled in a DRP). Another point to check: when an issuer DRP permits buying at a discount to market prices, some brokers may not let their customers benefit from the discount.

Dividend investing with a Mutual Fund or ETF

A final way to dividend invest is to buy shares indirectly in various companies through a mutual fund or ETF that specializes in dividend investing, and reinvest dividends paid by the fund.

The Claymore S & P / TSX Canadian Dividend ETF (or as a PDF doc.1538) is, to our knowledge, the only fund specializing in dividend investing that allows reinvesting dividends paid by the fund; see the website of Claymore .

Conclusion

This is the last commentary of our series of four on dividend investing. We hope this information will help you fully appreciate the advantages and disadvantages of this technique, and if you decide to practice it, to choose the method that best suits you. Our final recommendation: first consider the alternative of a standard index approach, with the usual resulting benefits (reduced costs, simplicity and instant diversification combined with the receipt of dividends at a rate that almost matches the performance of the market in general ) before deciding to pursue dividend investing.

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Last Updated ( Monday, 12 April 2010 )

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