Investing

Discount brokerages and DRIP's - how are they processed?

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  • Feb 14th, 2017 10:14 am
[OP]
Sr. Member
Nov 11, 2006
898 posts
392 upvotes

Discount brokerages and DRIP's - how are they processed?

I was always under the impression that any stocks that are DRIP eligible would be reinvested at the same price regardless of where you hold the securities.

I just spoke with CIBC and the individual advised me that they buy the securities in the "open market" but when I probed on whether all clients holding the same stock would get the same reinvestment price, he wasn't sure.

This was surprising to me because I thought all DRIPs would be reinvested at the same price, regardless of whether you hold the securities at TD, CIBC, BMO or elsewhere and more importantly, all clients would also get the same price if they were purchased by the same institution. I had no idea DRIP's were purchased in the open market.

Are there any brokerage employees out there who can shed light on this for me?

Thanks.
17 replies
Member
Jan 8, 2009
459 posts
75 upvotes
the price would definitely vary between brokers that honors DRIP discounts versus brokers that don't
[OP]
Sr. Member
Nov 11, 2006
898 posts
392 upvotes
secol wrote: the price would definitely vary between brokers that honors DRIP discounts versus brokers that don't
Yes, but what if the stock is not eligible for a DRIP discount? Are DRIP's processed in the open market (i.e. meaning a client may get a different price vs a different brokerage?)

I'm asking these questions because I'm learning the hard way that not all discount brokerages even offer DRIP's.

e.g. BMO Investorline does not offer DRIP's on their US stocks. Totally unbelievable. I now have thousands of dollars sitting in cash. I'll be transferring these over to a new brokerage soon.
Member
Jan 8, 2009
459 posts
75 upvotes
http://www.dripprimer.ca/canadiandiscountbrokers

that can help you out a bit. not sure with regards to the rest of your question though. i am with questrade and they synthetically DRIP stocks and i don't get DRIP discounts. but i would assume that when you receive your dividend, it will automatically be converted at the market price at the time of receipt
Sr. Member
Feb 17, 2012
645 posts
126 upvotes
Toronto
CanRulez wrote: Yes, but what if the stock is not eligible for a DRIP discount? Are DRIP's processed in the open market (i.e. meaning a client may get a different price vs a different brokerage?)

I'm asking these questions because I'm learning the hard way that not all discount brokerages even offer DRIP's.

e.g. BMO Investorline does not offer DRIP's on their US stocks. Totally unbelievable. I now have thousands of dollars sitting in cash. I'll be transferring these over to a new brokerage soon.
They might not offer DRIPS for US stocks but they offer a 2% discount for elegible Canadian stocks.
Jr. Member
Sep 12, 2008
101 posts
36 upvotes
Canada
Slightly OT, but I have a tangential question:

I've been getting paid some of my distributions for an ETF 5, 6, or even 10 days after th ETF fund company's official payment date. The brokerage blames it on the ETF company, and says that it's "normal." A rep. at the ETF company says it's definitely not normal, regardless of whether you're DRIPping or not. Can anyone comment on how long it takes for their cash or DRIPped ETF distribs to show up in their accounts?
Jr. Member
Nov 12, 2014
125 posts
103 upvotes
Levis, QC
shplad wrote: Slightly OT, but I have a tangential question:

I've been getting paid some of my distributions for an ETF 5, 6, or even 10 days after th ETF fund company's official payment date. The brokerage blames it on the ETF company, and says that it's "normal." A rep. at the ETF company says it's definitely not normal, regardless of whether you're DRIPping or not. Can anyone comment on how long it takes for their cash or DRIPped ETF distribs to show up in their accounts?
I'm with VB and NBDB and my distributions usually show up after one day. I never had to wait more than 2 days. At 5+ days there is definitly something wrong. FYI I own ETF from BMO and Ishares.
Sr. Member
Dec 28, 2007
999 posts
524 upvotes
There are two types of DRIPs: treasury and synthetic. Brokerages may support one or both types.

Treasury DRIPs are offered by some companies. New shares are issued by the company instead of paying out the company's cash, and some companies offer a discount to encourage shareholders to sign up. If you hold your shares at a brokerage, it takes the company a few days to issue the shares and send them to the brokerage. Then the brokerage needs to add the shares to everyone's account. I'd expect that shareholders at different brokerages that support treasury DRIP would get the same price.

Synthetic DRIPs are offered by some brokerages. The broker takes the cash dividends and buys shares at the market price. Then they add these shares to everyone's account (which should be a faster process than treasury DRIP). Since each brokerage does this independently, shareholders at different brokerages may get a different price and this price would be different than the treasury DRIP price (if the company offers it).
[OP]
Sr. Member
Nov 11, 2006
898 posts
392 upvotes
JUnit wrote: There are two types of DRIPs: treasury and synthetic. Brokerages may support one or both types.

Treasury DRIPs are offered by some companies. New shares are issued by the company instead of paying out the company's cash, and some companies offer a discount to encourage shareholders to sign up. If you hold your shares at a brokerage, it takes the company a few days to issue the shares and send them to the brokerage. Then the brokerage needs to add the shares to everyone's account. I'd expect that shareholders at different brokerages that support treasury DRIP would get the same price.

Synthetic DRIPs are offered by some brokerages. The broker takes the cash dividends and buys shares at the market price. Then they add these shares to everyone's account (which should be a faster process than treasury DRIP). Since each brokerage does this independently, shareholders at different brokerages may get a different price and this price would be different than the treasury DRIP price (if the company offers it).
Thanks for the insight JUnit. For the synthetic DRIPs you mention above, would each client at the same brokerage be given the exact same price (meaning would they take the average price of the combined purchases for everyone's DRIP (e.g. AAPL), then distribute accordingly depending on each client's proportion?)

Or, would each client get a different price (meaning each client's dividend purchases would be completed separately)?

Thanks!
Sr. Member
Dec 28, 2007
999 posts
524 upvotes
CanRulez wrote: Thanks for the insight JUnit. For the synthetic DRIPs you mention above, would each client at the same brokerage be given the exact same price (meaning would they take the average price of the combined purchases for everyone's DRIP (e.g. AAPL), then distribute accordingly depending on each client's proportion?)

Or, would each client get a different price (meaning each client's dividend purchases would be completed separately)?

Thanks!
I'd expect that each brokerage would do a 'group buy' and each client at that brokerage would get the same price, but I'm not certain of this.
Penalty Box
Oct 13, 2016
144 posts
11 upvotes
Which broker allows dividend reinvestment for us equities?
Jr. Member
Sep 12, 2008
101 posts
36 upvotes
Canada
Great info. Can anyone else share their experience with how long it takes for their ishares DRIPs to come in? Like I said, I'm seeing up to 10 days in one of my accounts, and that seems..well...suspect.
Deal Addict
User avatar
Aug 4, 2014
2764 posts
2465 upvotes
Toronto, ON
^ One day @ Questrade. Used to be a few days @ TD DI (in 2014), don't know about now..
Jr. Member
Sep 12, 2008
101 posts
36 upvotes
Canada
Thanks Freilona. Anyone else?
[OP]
Sr. Member
Nov 11, 2006
898 posts
392 upvotes
uwbuchanan wrote: Which broker allows dividend reinvestment for us equities?
Brokerages that allow DRIP's on US Equities:

Yes - TD, CIBC, Scotia...
No - BMO

I'm sure there are lots of other discount brokerages in the yes category...I'll leave it to others to comment on RBC, Questrade, Virtual Brokers, etc. as I am not 100% sure on those.

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