I’m Pat Rosenheim, a.k.a. the PandA Trader.
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.“
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, as they apply to our portfolio held at Merrill Edge…
The three different flavors I’ll lay out in this post are:
- Market DRIP
- Discount (or DTC discount-eligible) DRIP
- DRIP @ NAV
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 (or DTC discount-eligible) DRIP
When your dividends reinvest at a possible discount (or the holding is DTC discount-eligible), 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. I didn’t want to be a part of that, so I declined to acquiesce.
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). I wanted to wait until most of our assets had been transferred over, and frankly I wasn’t convinced that I should enable dividend reinvestment on some of our holdings until now. It was a commentor (clint_56) on the SeekingAlpha website that got me thinking, and then I just realized I was doing it wrong by not reinvesting all dividends, so I changed. It just makes sense. I was waiting to accumulate cash so I could buy what *I* wanted, when I wanted. But, instead of cash I now have more shares which earn more dividends that buy more shares that pay more dividends, ad infinitum. If I need cash, I can sell a little bit of a holding that is overweight in the portfolio and buy what I want. If I get more shares at a discount, and then sell them at a premium, I win with that scenario. Then, I can buy what I want and reinvest those dividends and keep the cycle going.
I’ve changed my dividend re-investment scheme, again. I’m only re-investing dividends that *might* possibly re-invest at NAV or a discount, i.e. DTC discount-eligible.
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 (or DTC discount-eligible) 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.
I finally got a somewhat definitive answer from someone at Merrill Edge, but it took several phone calls before I got the correct answer (or as close to correct as I can determine). I was promised a call back but didn’t receive it, of course. I was also told it’s “normal” for reinvestment to take 15 days or more because that’s how long it takes for the issuing company to “send the shares over”. I did verify that both CLM & CRF reinvest at NAV, which should be easy enough to verify with the next dividend & reinvestment.
I’m waiting to hear back from them about the rest of our holdings. Since we have 84 holdings, this could take a while (3-5 business days). I did get a call back and he left a message on my answering machine asking me to call back. When I did, I learned about the 3-5 business days time-frame thing. So, I’ll wait until May 23rd before contacting them again.
In the meantime, I will be tracking dividends paid that are eligible for reinvestment to see how long it takes to reinvest, whether the reinvestment is at market price or a discount or even at NAV, and posting the results here.
I did get a response to my email, but it gives different answers than I have received previously. So, I asked again. Of course, they have to check with their back office and get back to me. I don’t understand why I can’t talk to anyone in this mysterious back office. This most recent communication contradicted the previous communication, especially concerning CLM & CRF re-investing at NAV. A couple of other discrepancies came to light, but I’ll address that later.
I’ve made a matrix (i.e.; spreadsheet) to show the date the dividend was received, when it was reinvested and the number of days it took, and my comment on whether it was a market or discount or even a NAV reinvestment. I also mark the price of the re-investment. Starting with the sheet for June, 2018, instead of DTC under Comments I’ll occasionally fill in the amount of the discount as best as can be determined by taking the actual dividend per share received on the payment date and comparing it to the share price as shown on cefconnect.com, except where the dividend per share is equal to or greater than the share price as shown on cefconnect.com. Expect this to fill up as more dividends come in;
It’s beginning to look like issues trading at a discount to NAV will not generally reinvest at a discount, but more time is needed to fully verify that hypothesis.
A little more about PandA;
My name is Pat, and my wife’s name is Arlene. Take our first initials and concatenate them with the word ‘and’ in between and you get ‘PandA’. I chose this as my pseudonym for Stocktwits and my blog, etc. I think it’s rather fitting for us, plus 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…
…I’m old, and sometimes I do ‘corny’ stuff! 😉
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!