#HYHRD Three flavors of DRIP

Hi,

Scan10047

I’m Pat Rosenheim, a.k.a. the PandA Trader.

images.duckduckgo.com

The patron reads the relevant entry in the dictionary aloud and, sure enough, finds an explanation. “Panda. Large black-and-white bear-like mammal, native to China. Eats, shoots and leaves.

Well, now we’re going to discuss DRIP, which is an acronym for Dividend ReInvestment Plan.

I’m sure most of you know what that means, but in case you don’t you can simply click the above sentence for an explanation from investopedia. It will open in a new tab…

I’m going to explore three flavors of DRIP in this post…

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The three different flavors I’ll lay out in this post are:

  • Market DRIP
  • Discount DRIP
  • DRIP @ NAV

Market DRIP

When your dividends reinvest at market, or current share price, you are simply buying more shares with your dividends at market prices. There usually isn’t a long wait between dividend payment and reinvestment. This is the least efficient method of dividend reinvestment.

Discount DRIP

When your dividends reinvest at a possible discount, you are simply buying more shares with your dividends at a discount to market prices. The discount is usually determined by the paying company, and it usually takes a week or more for the reinvestment to take place. This is more efficient than ‘Market DRIP’, but less efficient than ‘DRIP @ NAV’.

DRIP @ NAV

When your dividends reinvest at NAV, or Net Asset Value, you are simply buying more shares with your dividends at NAV prices. Now, obviously this would only work in the shareholder’s favor if the issue is trading at a premium to NAV. This is also determined by the paying company. This is the most efficient method of dividend reinvestment.

There may be more ‘flavors’, but these three are what I’ll be concentrating on in this post, at least at the beginning…

I should also tell you that I recently transferred our assets from Fidelity (which reinvested some holdings at a discount, and at NAV) and Capital One Investing (which only reinvested at market price). Our new broker is Merrill Edge, a part of BofAML for self-directed investing. Capital One Investing’s self-directed clients are being sold off to Etrade sometime in 2018.

Also, only recently have I enabled dividend reinvestment for all of our holdings at Merrill Edge, with the exception of NYMTN (a fixed-to-floating rate preferred issue of NYMT).

On our Google sheets we have a tab labeled “Div.’s” that has color-coded dividend projections for each of our four accounts to show which flavor of dividend reinvestment is used by each holding. Some ‘guesswork’ on my part is required because there may be no discount for a reinvestment but it may still be a part of the discount DRIP plan but it just reinvested at 0% discount. It could also be reinvesting at market price. I’m going to assume, at least for now, that if a reinvestment takes 9 days (as was the case for NHF) that it is due to the holding participating in discount DRIP. This may not be true, but as I said I’m going to assume as much at least until I get a definitive answer from someone at Merrill Edge.

A little more about PandA;

My name is Pat, and my wife’s name is Arlene. Take our first initials and combine them with the word ‘and’ and you get ‘PandA’. I chose this as my pseudonym for Stocktwits and my blog, etc. I think it’s rather fitting for us, and her dad used to call her “DreamGirlStarBabyPanda” when she was younger. So, it’s kind of a tribute to him as well. It may seem a little ‘corny’, but that’s how it is…

Stay tuned!

As always, YMMV!

PLEASE TAKE NOTE AND REMEMBER THIS!

I’m not telling anyone to buy anything or giving anyone any advice, because that’s illegal. You see, I have no letters after my name, like RIA, CFA, etc. I SIMPLY DO NOT GIVE ADVICE. I only tell (and show!) what I do. You, like me, are all alone in this.

And remember, always do your own due diligence!

panda_wildePat Rosenheim
(PandA Trader)
High Yield, High Return Dividend
Portfolio
pat@patrosenheim.com
http://www.HYHRD.com
pandawalk

 

About PandA Trader

I am, I think... "Disobedience, in the eyes of anyone who has read history, is man's original virtue. It is through disobedience and rebellion that progress has been made." -- Oscar Wilde
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