Sunday, December 2, 2012

Scottrade to offer a fee free semi-DRIP plan?

Read this with a grain of salt because I haven't researched it but on the comment thread from an article on Seeking Alpha, one user commented that Scottrade was making a change to a their dividend reinvestment policy in 2013.  Starting in February they will begin allowing all dividends to accumulate and you can then reinvest in one stock for no commission.  It will still be full shares only but a change like this could be useful.

The fact that Scottrade didn't allow commission free dividend reinvestment was the main reason that I decided to not use them as my brokerage.  If their policy does in fact change this could be very useful for dividend growth investors.  I might open a new brokerage account sometime next year with Scottrade since I can get almost a 12% reduction in commissions.  It's only $0.95 per trade but that will add up when you're talking about 2-3 buys a month.  I'll definitely be on the lookout come February 2013 to see if this has changed because I'm still on on the fence with whether I should reinvest automatically or selectively reinvest but pay commissions. This would give the DG investor the opportunity to selectively reinvest without having to pay extra commission.  

14 comments:

  1. That is an interesting way to drip. I wonder why they don't just do it the regular way?

    I prefer to selectively reinvest, but I do turn on drips from time to time. Infact a drip I turned on executed just yesterday. I turned it on because I want to keep the position small yet I still want to increase my shares.

    The Scottrade drip sounds like it could fit my strategy!

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    1. CI,

      I'm not sure why they're venturing down this road instead of just a normal reinvestment or keeping it as no free reinvestment. I have most of my DRIPs on right now mainly because I like to see the dividends paid for each company grow every quarter. I need to start selectively reinvesting them but since the market isn't in extremely overpriced territory the DRIPs can keep working for now.

      I really like this idea from Scottrade because it lets you have the best of both worlds free reinvestment and choosing which company to invest in. If it does turn out that they're reinvestment program will look like this then I just might have to start sending some capital over there since the commission is a little bit lower.

      Thanks for stopping by!

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    2. I don't get it..."the best of both worlds"? I'm concerned about the following text in Scottrade's Terms of Use, "The FRIP does not qualify for the tax benefits of a traditional dividend reinvestent program under the IRS and securities purchased through the FRIP do not qualify for the same tax benefits as those purchased through a DRIP." Am I misreading something because this doesn't sound like such a sweet deal.

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    3. SDMairs,

      To me that doesn't make any sense. If the shares were purchased they were purchased, the only difference is that you don't have to pay a commission. I would think that as long as the holding period was met (owning the shares 61 days out of the 121 day period that starts 60 days before the ex-div date) then I would think they would still count as qualified dividends and therefore the lower tax rate. I haven't moved anything to Scottrade yet so I won't be of much help. There's several bloggers that do use it though so I'm sure come tax time next year we'll see some posts/complaints about that should they be considered ordinary dividends and taxed at the higher rate.

      Thanks for stopping by!

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  2. This would be interesting. I use Scottrade and was initially disappointed that they didn't allow me to drip my dividends. Instead of dripping though I let my dividends accumulate and then use them to decide on a particular stock that I believe to be good value at the time of my purchase.

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    1. That was the main reason I didn't go with Scottrade when I first opened my brokerage account. But this could change everything. I really like the idea of getting to selectively reinvest without having commissions on it. I still go back and forth with whether I should DRIP back into the parent company or not. For now I have the DRIP on for most positions but that will probably change in the future once the monthly/quarterly dividends really start rolling in.

      Thanks for stopping by! And best of luck.

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  3. Interesting as I found this information from an internet search. I spoke to a Scottrade Branch Manager last week and he essentially said the same thing. He did mention that Scottrade may not be calling it "Dividend Reinvesting" but rather then might call it something else. He wasn't sure what it was to be called, but he did mention "Flex" investing or something similiar. This could be something that interests me.

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    1. That's great that you've heard this recently from a branch manager. I really like the idea and it helps for those that look to selectively reinvest their dividends rather than just reinvesting back into the paying company. Did you happen to ask/hear when the plan will be rolled out? This might push me to open an account over at Scottrade.

      Thanks for stopping by!

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  4. No, he did not know when it was to be implemented. I was hoping soon then. I am hoping sooner now.

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  5. We've been waiting for years... Don't hold your breath...

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  6. Just talked to our local Scottrade rep last week and he had no idea when the plan will be rolled out. He had heard of it. Also told me that the plan would not include fractional shares.

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    1. That's a shame because I really like this idea. I wouldn't be too worried about the fractional shares if it does work the rumors say. Hopefully some more concrete plans will be released soon.

      Thanks for stopping by!

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  7. From Scottrade's Knowledge Center (post not dated):

    "Scottrade will soon offer a commission-free flexible dividend reinvestment program that will allow you to invest dividends from most dividend-paying stocks or exchange-traded funds that you own into most stocks or ETFs.

    The program will be different from a traditional dividend reinvestment program (DRIP), which requires you to reinvest dividends back into the securities that paid the dividends. In the Scottrade program, dividends will accumulate into a pool of funds that you can use to purchase shares of almost any stock or ETF. The choice is yours.

    The Scottrade program will provide significant flexibility and is designed to let you tailor your dividend reinvestment tactics to your overall investment strategy."

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  8. What an amazing post to read!! thank you for the share!!

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