DRiPs - Registering Shares to Your Name

This is the second installment of my series on DRiP investing.

Registering Shares to Your Name

To participate in a company's DRiP, your shares of that company must be registered to your name. What does this mean?

When we purchase shares through a broker, our broker buys the shares and keep them for us, simply making an entry into their books (more likely a database) that X of those shares belong to you. As a result, the company does not know that you own those shares.

To enroll into the company's DRiP, the company must know about you. So, only shares registered to your name will do. If you already have shares that you purchased through your broker, you simply have to call your broker and ask for the shares to be registered directly to you. Your broker will charge you a fee for this (usually in the range of $30 to $50). Once this is done, your shares will no longer appear in your account at the broker, and you will receive a paper certificate showing your ownership of those shares.

Important Note: The certificate is valuable, since it is the proof of your ownership of the shares. You should keep it somewhere safe, like in your bank's safety box.

Once the shares are registered to your name, you will now appear as one of the owners in the books of the company. As such, you will be allowed to enroll in its DRiP and SPP.

There are ways to purchase shares of the company without going through a broker, and which are less expensive. I will address this in a future installement of the series, once all the basic features of dripping have been covered.

DRiPs - What are they?

One of my favourite ways to invest money for the long term is through my DRiP portfolio. So I thought I would present a series on DRiP investing. This is the first installment.

What are DRiPs?

DRiP is the acronym for "Dividend and Reinvestment Plan". A DRiP is a plan offered by some companies to allow their shareowners to easily re-invest the dividend they receive into more shares of that company, without paying additional fees.

Under such a plan, whenever the company would pays out a dividend, instead of sending you a check for the dividend, it uses that amount to buy additional shares for you. The kicker is that this amount can purchase fractional shares. Those fractional shares, in turn, will also pay out a dividend to you on the next distribution date. This means that you gain the full benefits of compounding. The vast majority of companies that offer a DRiP will reinvest you dividends without charging any fee.

It gets even better. Many companies also offer an additional feature, called a "Share Purchase Plan" (SPP). Under the SPP, you can send additional money to the company to purchase additional shares, without paying any fee. You read that right: invest money without paying fees!

There are some drawbacks to this, though:

• The shares must be registered to your name. This takes time, and carries some costs.
• The purchases of additional shares is done at a preset date, so you cannot time the market closely.
• DRiPs generate a lot of paperwork, and you have to track each purchase.
• Selling shares in a DRiP takes time.

I will come back to each of those in the next installments of the series.

Net Worth Update

As of December 1st, my net worth was $46 360 (down 0.5% from $46 579). The stock market was choppy and though this month, but started to recover at the end.

If I exclude house-related assets and liabilities, my net worth is $37 231 (down 0.4% from $37 367).

Assets ($124 334, down 0.3% from $124 747)

• Bank Accounts $3 622 (down 3.3% from $3 747)
• Emergency Funds $2 556 (down 32% from $3 747)
• RRSP Accounts $31 306 (down 2.2% from $31 999)
• Non-Registered Investments $5 632 (up 24% from $4 542)
• Home $75 600 (stable)
• Arbitrage $5 000 (stable)

Liabilities ($77 975, down 0.25% from $78 168)

• Credit Cards $6 362 (up 3% from $6 171)
• Student Loan $2 665 (down 8.5% from $2 911)
• Mortgage $56 680 (down 0.2% from $56 785)
• Heat Pump Loan $7 151 (down 0.7% from $7 198)
• Arbitrage $4 895 (down 2.1% from $5 000)

This month, I did about half of my Christmas shopping, and refilled the oil tank for the house. These expenses went on the credit cards. Some money from the emergency funds was used for a temporary purchase in the non-registered investments -- it will be back in the emergency fund in December. I put about $1000 in the RRSP this month, at that wasn't enough to compensate completely for the down markets. Choppy indeed!

Update on CC Arbitrage Experiment

Yesterday, I received my first monthly statement for the credit card I used for my arbitrage experiment.

The good surprise was that I was charged no fee to use the balance transfer cheque. Whoo-hoo!

As I expected, I will have to do a minimum payment each month, which for this month is $105. This is not too bad, at 2.1% of the current balance.

I will pay this out of my regular income, as if I was putting money aside for investment. However, this means that if I had wanted to run this with no impact on my regular cash flow, I would have to put aside a part of the initial amount for these monthly payments. This could be segmented by 3-month periods (since ING Direct offers GICs for 90, 180 and 270 days).

The exact run-down of this, with a $1000 arbitrage for 12 months (to keep things simple and make it easy to multiply the amount), would be something like:

• Leave $62 in the regular savings account -- this will cover the first 3 monthly payments.
• Put $57 in a 90-day GIC -- to cover minimum payments for the next 3 months.
• Put $54 in a 180-day GIC -- minimum payments for months 7 to 9.
• Put $51 in a 270-day GIC -- for the last 3 minimum payments.
• Put $776 in a 1-year GIC -- this will be the final balance at the end.

All of this assumes that the minimum payment is based on the running balance of the account.

Of course, this would somewhat reduce the total interest gained for the arbitrage. But like I said, this would eliminate the impact of the arbitrage on my regular cash flow.

Net Worth Update

As of November 1st, my net worth was $46 579 (down 2.5% from $47 780). The decrease was due to the replacement of the car shelter.

If I exclude house-related assets and liabilities (that includes the car shelter financing), my net worth is $37 367 (up 2.9% from $36 316).

Assets ($124 747, up 5.4% from $118 321)

• Bank Accounts $3 747 (down 12% from $4 246)
• Emergency Funds $3 747 (up 37% from $2 729)
• RRSP Accounts $31 999 (up 3.3% from $30 974)
• Non-Registered Investments $4 542 (up 7.8% from $4 214)
• Home $75 600 (stable)
• Arbitrage $5 000 (new)

Liabilities ($78 168, up 10.8% from $70 542)

• Credit Cards $6 171 (up 93% from $3 195)
• Student Loan $2 911 (down 7.8% from $3 156)
• Mortgage $56 785 (down 0.2% from $56 890)
• Heat Pump Loan $7 198 (down 0.7% from $7 247)
• Arbitrage $5000 (new)

This month, instead of moving $500 directly to my RRSP account, I parked it in my emergency fund. Since I would not have a big enough amount to make a purchase, this way it will generate some interests. I'll do the same in the future, until the amount is big enough to matter. Then I will transfer it to my RRSP account, where it will be available when an opportunity presents itself. Since I have until February 2008 to max out my 2007 RRSP contributions, putting my money straight into my RRSP account where it does not generate much interests would not be as efficient.

Obviously, the replacement of the car shelter had a big impact on my net worth, since I am financing it on my credit card (12 monthly payments without interest). However, since this is a house-related expense, Princess will be transferring me her share of it every month, which increases my cash flow.