A Dividend Reinvestment Plan (DRIP) is an investment program offered to shareholders by certain corporate securities issuers. Shareholders who participate in the plan reinvest their cash dividends and buy additional shares of the company instead of receiving a cash payment. Some plans also permit investors to make additional cash contributions to their plans. Like reinvested dividends, these are used to purchase additional shares in the company at little or no commission.
DRIPs are best suited for long-term investors. Purchase and sale (if applicable) prices are not determined by the investor because transactions are executed on predetermined dates. Generally, there are limits on investment amounts and the liquidation of plan shares may not be immediate. These factors limit the effectiveness of DRIPs for short-term investors. Canadian anti-money laundering laws require AST to obtain information from optional cash participants. If you intend to make optional cash payments, please send AST a completed participant declaration form, if you have not already done so, for the plan in question.
Features of DRIPs
Note: This is a general discussion of DRIPs and their features. Plan terms vary. Plan documentation must be consulted to determine the specifics of each plan.
Fees to administer the plan are generally paid by the issuer offering the plan. You can build on your investment on a regular basis at no cost.
In situations where shareholders pay fees, they are usually minimal and a fraction of the cost of brokerage fees.
Optional Cash Payments (OCPs)
Some DRIPs offer a feature known as Optional Cash Payments (OCPs), which enables plan participants to purchase additional shares of the company's stock by making voluntary cash contributions to the plan.
The frequency of optional cash payments varies from plan to plan, but it is generally monthly or quarterly for plans offered by Canadian issuers. Plans may also have minimum and/or maximum permitted purchase amounts, per individual purchase or per year.
As with reinvested dividends, the shares are acquired with few or no commissions.
Canadian anti-money laundering laws require AST to obtain information from optional cash participants. If you intend to make optional cash payments, please send AST a completed Participant Declaration form, if you have not already done so, for the plan in question.
Participating in a DRIP enables shareholders to purchase and hold fractional shares.
For example, if on a payable date you are entitled to a dividend payment of $12.50, which is reinvested in additional shares at a purchase price of $4/share, you would receive 3.125 shares. Over time, fractional shareholdings accumulate into whole shareholdings for the plan participant.
How Shares are Held
Shares purchased in the plan are held in electronic (book-based) form on your behalf by AST. The plan shares are registered in your name, and you have all of the rights and privileges of a registered shareholder.
Statements showing transactions and plan holdings are usually issued on a quarterly basis. If desired, you can request share certificates, but plans may have some restrictions (e.g., a limited number of free withdrawals per year).
Research & Tools
A Dividend Reinvestment Plan is a cost-effective and convenient way for a shareholder to grow holdings in an issuer's stock by using a portion or 100% of dividend payments to buy additional shares of the company, sometimes at a discounted rate. In some cases, depending on the plan, a shareholder can also contribute additional cash to buy even more shares. Statements are sent periodically to show transactions and holdings. Shares may be withdrawn at any time.
Shares may be withdrawn from a plan by written request to AST. Many plans include a withdrawal form on the bottom of their statements. You may withdraw as many of your shares as you wish, and you may continue or terminate your participation in the plan. If you terminate your participation in the plan, a cheque will be issued to you for any fractional shares held. AST will mail a certificate to you via first-class insured mail.
If you participate in a plan that allows optional cash contributions, you can either attach a cheque to the contribution form found on the tear-off portion of your statement or send your cheque with a cover letter to AST. Also, if the plan offers AST's Automatic Investment Service, you can make automatic contributions via pre-authorized chequing if you enrol in the service. Simply complete the enrolment/authorization section on the back of your contribution form.
If you need a copy of the form, please email us or call 1-800-387-0825 and we will forward you a separate copy of the form. In either case, your funds will be applied to purchase additional shares on the next purchase date. Your next statement will reflect the Optional Cash Payment. Most plans have minimum and maximum payment restrictions that are stated on your reinvestment statement. Generally, optional cash is processed quarterly, although some plans offer monthly processing as well.