How to Maximise Your Profits with DRIP

Dividend Reinvestment Plan, or DRIP, is a plan that allows the investor purchase additional or fractional shares of the company they invested in with the dividends paid. A look at how to maximise your investment profits with DRIP.

Dividend Reinvestment Plan, or DRIP in short, is a plan allowing investors to use the dividends received from their portfolio to buy additional shares or fractional shares on the dividend payment date. Brokerage firms usually charge little or no commissions for such purchases.

Let us take a look at the opportunities of enrolling in DRIP.

Benefits of DRIP

There are lots of benefits of DRIP that an investor can reap by enrolling in the program

  1. Saving on commission. Many brokerage firms offers the purchase of the additional or fractional shares at little or no commission. The low or no commission allow the investor to increase their portfolio without having to worry that their profits will be reduced by the commission.
  2. Starting small. As the saying goes “Better to start early than never“. This is especially true in investment. Many people claim that they would start their investment whenever they have enough cash or when they have a windfall. The smarter investor will try to put their money to start working, no matter how small the amount is. Enrolling in DRIP increases the investor portfolio. Though it may be a fractional of a share, this investment will eventually reap more profits.
  3. Automation. One of the most important point why enrolling in DRIP is beneficial to an investor’s portfolio. Unless you are very disciplined, most of the people will tend to spend “what is there” and the dividends paid out will very soon be spent. When the dividends are automatically reinvested, the possibility of spending the dividends is immediately reduced to zero.

Let us take a look at how DRIP helps to maximise your profits using Visa Inc. (NYSE: V) as an example.

Visa pays out a quarterly dividend. Assuming an investor starts off with 100 shares of Visa in March 2012, before the Ex-Date of the March payout, by the end of the last dividend payout in December 2014, his portfolio would have been worth $553.73 more if DRIP was enrolled.

DRIP Comparison | Investor Monkey

Why not do it?

If enrolling in DRIP can help to increase the profits of a portfolio, why then do people not enrol in it?

  1. Not knowing the existence of DRIP. Some investors, surprising, do not know the existence of the program.
  2. Not appreciating the profits. Without looking at the benefits in detail, the profits from the program cannot be appreciated.
  3. Diversification. By reinvesting the dividends back to the same company will have its own risks. By taking the dividends and personally reinvesting it in future can allow the investor to reinvest the dividends in other companies to diversify their portfolio.

Bottom Line

The true benefits of DRIP can only be realised for long-term investments. If your portfolio is targeted at growth stocks, it might be better to better for you to take the dividends and invest them in other stocks or wait till the stock price of the company is more attractive before you reinvest.

Portfolio Update (May 2015)

The month of May was a pretty exciting one for me as my US portfolio made a new high, closing at 13.53% YTD gain on the last day of the month. This is a good news, and also a bad one, as I might have to sell all the shares on hand as I will need the money for something else soon.

Good news is that overall both portfolios have positive gains since I first started. Bad news? Well, the US portfolio is making good progress and I will have to close all positions, even when I foresee that there is potential for it to move higher.

Well, I will just have to save up quickly and hopefully have enough cash to start my investment by the end of the year. Looking forward, I will likely be concentrating on just the US portfolio and working on building a portfolio of income stocks.

While I work hard on my savings, my investment journey will not stop here. I have been tasked to help build an income portfolio over at TradingCommand. We have hand-picked some stocks to build two portfolios, Growth Stocks and Income Stocks. Do hop over at times and see what stocks we have picked for the two portfolios.

Dividends

Received dividends totalling $137.76 from Starhill Global (P40U.SI), Suntec (T82U.SI) and Mapletree GCC (RW0U.SI). Total YTD dividends received is $285.56 or 2.33% yield.

Stock Code YTD Dividends
Singapore Post Limited S80.SI $37.50 1.21%
Starhill Global REIT P40U.SI $51.00 2.65%
Suntec REIT T80U.SI $96.14 3.02%
GlaxoSmithKline GSK $32.96 1.48%
Mapletree GCC Tr RW0U.SI $67.96 3.72%
Total Dividends $285.56 2.33%

Profit & Loss

Profit and loss changes during the month of May was mixed but ended slightly lower compared to the end of April.

Stock Code Realised Profit/Loss Unrealised Profit/Loss
Singapore Post Limited S80.SI 81.74%
Starhill Global REIT P40U.SI 9.22%
Suntec REIT T80U.SI 12.91%
GlaxoSmithKline GSK 24.11%
Mapletree GCC Tr RW0U.SI 17.10%

My US stocks did relatively better as compared to my Singapore ones with Avago Technologies (AVGO) punching through the high of $136.28 in March.

Stock Code Realised Profit/Loss Unrealised Profit/Loss
Kroger Co KR 0.34%
Hyatt Hotels Corporation H 5.82%
Saia Inc SAIA 7.90%
Apple Inc. AAPL 3.74%
Xerox Corp XRX 2.50%
Jetblue Airways JBLU 25.92%
Skyworks Solutions Inc SWKS 29.50%
Twitter TWTR 20.97%  
Celgene Corporation CELG  7.29%
Visa Inc V 6.68%
Avago Technologies Ltd AVGO 38.31%
AmerisourceBergen Corp. ABC 18.36%
Sherwin-Williams Co SHW 1.38%

Dividends was received for Sherwin-Williams (SHW) as I had forgotten to activate the DRIP for the stock. Timely reminder for all of us to request for DRIP when new stock counters are purchased.

Portfolio Update (April 2015)

The month of April was filled with uncertainties if the Fed will be raising the interest rates. The uncertainty brought fears to investors, causing some of the stock prices to plummet. At the last few trading days of April, the Fed suddenly announced that they will revise the interest rates again in June, bringing relief to investors, bringing them back to the market.

Dividends

Received dividends from GlaxoSmithKline (GSK) in the month of April. After all charges are deducted, total dividends received is S$18.29. Year-to-Date dividends received from GlaxoSmithKline and from my dividend portfolio is 1.48% and 1.20%.

Stock Code YTD Dividends
Singapore Post Limited S80.SI $37.50 1.21%
Starhill Global REIT P40U.SI $25.80 1.34%
Suntec REIT T80U.SI $51.54 1.60%
GlaxoSmithKline GSK $32.96 1.48%
Mapletree GCC Tr RW0U.SI $0.00 0.00%
Total Dividends $147.80 1.20%

Profit & Loss

Profit and loss changes during the month of April was mixed but ended slightly lower compared to the end of March. This is mainly because of the uncertainties of the raising of interest rates by Fed.

Stock Code Realised Profit/Loss Unrealised Profit/Loss
Singapore Post Limited S80.SI 84.64%
Starhill Global REIT P40U.SI 9.22%
Suntec REIT T80U.SI 11.03%
GlaxoSmithKline GSK 38.23%
Mapletree GCC Tr RW0U.SI 16.00%

Purchased 14 shares of Sherwin-Williams Co on 9 April after the share price broke its recent high of 291.27. Although the share price did not manage to continue rising, the company’s fundamentals still did not change and I continued holding on to the shares of the company.

Similarly, share prices took a hit in April on fears of the Fed raising the interest rates, causing the income portfolio to shed a few points.

Stock Code Realised Profit/Loss Unrealised Profit/Loss
Kroger Co KR 0.34%
Hyatt Hotels Corporation H 5.82%
Saia Inc SAIA 7.90%
Apple Inc. AAPL 3.74%
Xerox Corp XRX 2.50%
Jetblue Airways JBLU 25.92%
Skyworks Solutions Inc SWKS 29.50%
Twitter TWTR 20.97%  
Celgene Corporation CELG  7.29%
Visa Inc V 2.13%
Avago Technologies Ltd AVGO 14.71%
AmerisourceBergen Corp. ABC 20.52%
Sherwin-Williams Co SHW 3.44%