Some Canadian companies offer dividend reinvestment at a discount. These dividend reinvestment plans or DRIPs allow you to reinvest dividends at a discount.
You can then buy shares of these businesses at a cheaper price with the dividend 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.
March 2017 Update: Added Algonquin Power & Utilities Corp (TSX:AQN)(NYSE:AQN) to the list
Nov 2016 Update: Cominar REIT’s DRIP updated from 5% to 3%.
July 2016 Update: Added Altagas Ltd (TSX:ALA) to the list.
If you’re reinvesting for more shares 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?
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.
|Company||Ticker (TSX)||S&P Credit Rating||Industry||DRIP Discount||Eligible Dividends?|
|Algonquin Power & Utilities Corp||AQN||BBB||North American utility||Up to 5%||Yes|
|Altagas Ltd||ALA||BBB||Utility with power, utility, and pipeline assets||3%||Yes|
|Artis REIT||AX.UN||UR||Diversified REITs||4%||No|
|Canadian Apartment Properties REIT||CAR.UN||UR||Residential REITs||5%||No|
|Canadian REIT||REF.UN||UR||Diversified REITs||4%||No|
|Canadian Utilities (Class A shares)||CU||A||Diversified Utilities||2%||Yes|
|Cervus Equipment||sCVL||UR||Farm & Construction Equipment||5%||Yes|
|Cominar REIT||CUF.UN||UR||Diversified REITs||3%||No|
|Dream Office REIT||D.UN||UR||Office REITs||4%||No|
|Dream Industrial REIT||s,<5DIR.UN||UR||Industrial REITs||3%||No|
|Dream Global REIT||s,<5DRG.UN||UR||Diversified REITs||4%||No|
|Enbridge||ENB||BBB+||Oil and Gas Midstream (Pipeline)||2%||Lean towards Yes|
|Exchange Income Corporation||sEIF||UR||Airlines||3%||Lean towards Yes|
|Gibson Energy||<5GEI||UR||Oil and Gas Midstream||Up to 5%||Lean towards Yes|
|Keyera||KEY||UR||Oil and Gas Midstream||3%||Yes|
|Killam Properties||KMP||UR||Real Estate Operating||3%||Yes|
|Northwest Healthcare Properties REIT||sNWH.UN||UR||Healthcare REITs||3%||No|
|Plaza Retail REIT||sPLZ.UN||UR||Retail REITs||3%||No|
|RioCan REIT||REI.UN||BBB||Retail REITs||3.1%||No|
|Smart REIT||SRU.UN||UR||Retail REITs||3%||No|
|Sun Life Financial||SLF||A||Life and Health Insurance||Up to 5%||Yes|
|Valener||<5VNR||BBB+||Gas Utilities||Up to 5%||Yes|
|Vermilion Energy||VET||BB-||Oil and Gas E&P||3%||Yes|
- UR = Unrated
- s = A small cap with market capitalization < $1B.
- <5 = Companies or REITs which have been in the market for less than 5 years but haven’t cut their dividends or distributions in the time they have been listed.
Caution on Small Cap Companies
Small cap companies may provide higher growth potential than bigger companies. For example, it’s easier for a small company with $200M market capitalization to grow 100% by reaching $400M than for a bigger company with $10B market cap to grow 100% by reaching $20B. Small caps are also less liquid, as their trading volumes are lower than bigger companies which have a higher number of shares out on the market. There’s also a possibility that the small cap will be acquired by another company, usually a bigger one. In such a case, the small cap usually shoots up in price.
The Dividend or Distribution Discount May Change
I looked into each company to make this list as accurate as possible. However, there will always be changes. Companies can choose to reduce the dividend reinvestment discount or eliminate it altogether. For example, one company used to give 5% discount and now only gives 3%. A Canadian bank used to give 2% discount, and eventually eliminated it altogether.
I am but a single investor, so please let me know if any correction is needed. I will update this list as I come across changes.
This list consists of companies (or REITs) which hasn’t cut their dividends (or distributions) for 5 years. It also includes companies which has initiated a payout for less than 5 years. This is a shortened list for initial research for companies you can reinvest payouts at a discount. Just because a company is on this list, doesn’t mean it’s a buy. Just because a company is not on this list, doesn’t mean it’s not a good company. At the end of the day, investing in companies at proper valuations and with postive future earnings expectations is key.
If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.Disclosure: At the time of the last update, I was long FTS, NWH.UN, VET, DRG.UN, ENB, and PLZ.UN.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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