Some Canadian companies offer dividend reinvestment at a discount. These dividend reinvestment plans (or DRIPs) allow you to reinvest dividends (or distributions) at a discount. So that you can buy shares (or units) of these companies (or REITs) for a cheaper price with the dividend (or distribution) that is paid to you without having to pay commission fees. Typically, the reinvestment price is some sort of weighted average of the market price in addition to incorporating the discount percentage.
If you’re reinvesting for more shares (or units) through a transfer agent, you’ll be able to reinvest for partial shares. If you enrolled for the DRIP in a brokerage account such as ScotiaOnline, then, you’ll only be able to reinvest full shares. That means, you need to buy enough shares (or units) initially to receive a dividend (or distribution) that is enough to buy at least 1 full share. For example, I held 364 units of TSX:PLZ.UN, a retail REIT. On October 22, 2014, its distribution was reinvested at $3.78 at a 3% discount, and I received the rest of the distributions ($3.50) as cash. Now, I hold 365 shares.
Learn more about buying shares through a transfer agent.
Dividend or Distribution must be Safe
As a dividend investor, the dividend is an essential ingredient to my total return. So, I decided to add another criterion for a company to make this list. The dividend or distribution hasn’t been cut for the past 5 years (since 2009). This criterion eliminated some Energy companies. This criterion is especially important if you’re planning to reinvest dividends into the company. Think about it; you’re adding more money to the investment!
Additionally, companies with a BBB+ S&P credit rating or better indicates that they are investment grade, and have safer balance sheets. This means, I will purchase a BBB+ company over a BB- company for example, given the companies are at proper valuations and future earnings expectations are positive.
Dividend Reinvestment at a Discount – The Canadian Companies List
Below is a list of companies or REITs whose dividends (or distributions) haven’t been cut for 5 years. For ones which have only paid dividends (or distributions) for less than 5 years, they’re marked as such. This list is not a recommendation to buy these companies. It simply serves as a reference to look for safer companies with a DRIP discount. Just because they offer a DRIP discount, doesn’t mean you should buy them at any price. Check their valuations and future prospects first! For instance, do you have a positive outlook on their future?
3 companies I want to highlight are Enbridge, Fortis, and Sun Life Financial. They have the most solid balance sheets of the group.
In the list, there are 11 REITs. Investors invest in Real Estate Investment Trusts for their tendency to pay out a higher starting yield. So, they are nice income vehicles. However, most offer little growth for that payout. Additionally, their distributions aren’t eligible dividends. Further, a portion of an REIT’s distribution maybe return of capital. Wrap your head around REIT taxation from Globe and Mail. To simplify things for yourself, you can choose to buy REITs in the TFSA or RRSP instead of in the taxable, non-registered account. Then, you don’t have to worry about their tax situation. Read More