Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on successful investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away.
Tip of the week: “It takes more than a DRIP to make a stock a worthwhile buy.”
Some companies offer automatic dividend reinvestment plans, also known as DRIPs. These plans let shareholders reinvest their dividends to buy additional shares (or fractions of shares) of the company. DRIPs bypass brokers, so shareholders save on commissions.
Overall, we think dividend reinvestment plans are a good way to build wealth over a long period of time. But here are a few things to keep in mind:
Advantages of DRIPs
You invest without paying brokerage commissions.
Dividend reinvestment plans eliminate the nuisance of depositing or reinvesting small cash dividend cheques. As well, many DRIPs allow optional commission-free share purchases on a monthly or quarterly basis.
Dividend reinvestment plans provide a framework for regular, systematic investing.
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Disadvantages of DRIPs
DRIPs offer much less of an advantage now than they did in, say, the 1980s, when brokers charged 2% or more to buy stocks. Now, thanks to the growth of discount brokerage and Internet competition, you can buy stocks for a commission cost of 0.5% or less. In addition, many companies that offer DRIPs have done away with the 5% discounts that used to be common. Now you pay full price to buy through most DRIPs.
You’ll need to keep careful records of all purchases to compute your capital gains and losses when you sell. Many investors find this particularly troublesome, especially when they inherit the task. As well, keep in mind that you must still pay taxes on dividends that you reinvest.
How to get started
To participate in a DRIP, you must first own and register one or more shares of a company’s stock. Share registration (through a traditional or discount broker) will generally cost between $40 and $50 per company. Then you must contact the company to ask for the form you fill out to enrol in the plan.
Our investment advice: We think DRIPs are okay to participate in if you use them to cut commission costs on stocks you would have bought anyway. But confining your investments to stocks that offer DRIPs is a terrible idea. That’s because not all stocks that offer DRIPs are good investments. And you can lose a lot more on these stocks than you could ever save on commissions.
Next Wednesday, November 17, 2010, Investor Toolkit will show you ways to balance your portfolio for lower-risk gains.
Learn everything you need to know in
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REITS Canada and other Top Canadian Dividend Stocks.
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The Successful Investor Inc. and its affiliate Successful Investor Wealth Management (referred to hereafter as TSI Network) know that you care how information about you is used and shared, and we appreciate your trust that we will do so carefully and sensibly. This notice describes our privacy policy. By visiting websites owned by or associated with TSI Network, you are accepting the practices described in this Privacy Policy.
This privacy policy is applicable to all TSI Network Visitors, Clients, Employees, Suppliers, Web sites, Management, and all other interested parties. Any links to or from our site are not covered by this policy. We encourage you to read the privacy policies of every site that you visit.
The privacy of the site/store visitor is very important to TSI Network, and is respected at all times. The information we receive from customers helps us to personalize and continually improve your online experience at TSI Network.
We do not collect or disclose personal information, except when it is provided to us voluntarily by the site/store visitor with their consent.
We store subscriber and password files containing personal information securely. These files are stored in secure areas that are not accessible to the general public. We are always working to ensure the security of your personal information.
We are continuously in the process of improving our sites and services. If any new features or policies require a change to this current policy, we will post a clear notice of this change on pages of our site where the privacy policy appears. The principle behind this privacy policy is to collect information with your knowledge and consent.
What personal information do we collect?
The information we receive from customers helps us personalize and continually improve your online experience at TSI Network. TSI Network may collect personal information online for all legal purposes, which include, but are not limited to:
Information You Give Us: We receive and store any information you enter on our website or give us in any other way through sign-up forms or ordering forms for publications and services. You can choose not to provide certain information, but then you might not be able to take advantage of many of our services and features. We use the information that you provide for such purposes as responding to your requests, customizing your web browsing experience for you, improving our website, and communicating with you.
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We do reserve the right, however, to collect and perform statistical analyses of the internet traffic to our website for our internal use. However, information collected does not allow us to identify any individual, and will not collect any personal information of the visitor. Furthermore, we do not sell, rent or loan to any outside parties the information collected and analyzed.
Although you may be able to access some of our websites without being required to register or provide personal information, certain websites and sections of our websites may require registration. In addition, if you choose to contact us to ask a question, we will collect your personal information so that we can respond to your question.
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Does TSI Network Use the Information It Receives?
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TSI Network does everything possible to prevent unauthorized intrusion to its websites and the alteration, acquisition or misuse of personal information by unauthorized persons. Notably passwords submitted by users of our websites are encrypted using encryption mechanisms. However, TSI Network cautions visitors to its websites that no network, including the Internet, is entirely secure. Accordingly, we cannot be responsible for loss, corruption or unauthorized acquisition of personal information provided to our websites, or for any damages resulting from such loss, corruption or unauthorized acquisition.
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TSI Network has procedures in place to keep your personal information accurate, complete and current for the purposes for which it is collected and used. You may review the information that you have provided to us and where appropriate you may request that it be corrected. If you wish to review your personal information please send a request to: service@tsinetwork.ca.
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The provision of information by you is entirely voluntary and you have the right not to provide information. Subject to applicable law, you may have the right to receive certain information as to whether or not personal information relating to you is held by TSI Network and to obtain a copy of such information that is sought. You may also have the right to require information, where appropriate, to be erased, blocked or made anonymous or to have data updated or corrected. If you do not wish TSI Network to hold information about you or if you wish to have access to information, modify information, or object to any processing of information or if you have questions please contact us.
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Changes to this Policy
This Policy is the sole authorized statement of TSI Network's practices with respect to the collection of personal information through TSI Network's websites and the subsequent use and disclosure of such information. Any summaries of this Policy generated by third party software or otherwise (for example, in connection with the "Platform for Privacy Preferences" or "P3P") shall have no legal effect, are in no way binding upon TSI Network, shall not be relied upon in substitute for this Policy, and neither supersede nor modify this Policy.
TSI Network may revise this Policy from time to time.
Legal Notices and Disclaimers
The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
Information presented on this web site or contained in our publications is not an offer, nor a solicitation, to buy or sell any securities referred to on the web site or in the publications. The material is general information intended for recipients who understand the risks associated with an investment in any securities referred to in the publications or on this web site. The Successful Investor has made no determination regarding whether an investment, course of action, or associated risks are suitable for the recipient.
