The power of a dividend reinvestment plan (DRIP) on an investment portfolio

I own a stocks and units investment portfolio since 2008. I don’t have a long experience when it comes to the stock market. But I am willing to share stuff I had learned among the way. And the dividend reinvestment plan (DRIP) is one of them.

Some of the companies I own in my portfolio offer a dividend reinvestment plan. The dividend reinvestment plan (DRIP) is a really interesting system. DRIP allows investor to reinvest the dividend they earn on a monthly (for units) or quarterly basis (for stocks) in order to acquire new stocks or units.

In our portfolio, 5 companies had the dividend reinvestment plan (DRIP). They are: Pengrowth Energy Trust (PGF.UN), Just Energy Income Fund (JE.UN), Yellow Pages Income Fund (YLO.UN), Bank of Nova Scotia (BNS), Fortis (FTS) and Sprott Inc. (SII). Those companies are from the Canadian stock market Toronto Stock Exchange (TSX).

Examples of the power of a dividend reinvestment plan (DRIP)

Pengrowth Energy Trust (PGF.UN): monthly dividend of $0.10
In this example, we suppose that each unit cost roughly 10$
September 2009: 645 units x $0.10 = 64.50$/10$ per unit = 6 new units
October 2009: 651 units x $0.10 = 65.10$/10$ per unit = 6 new units
November 2009: 657 units x $0.10 = 65.70$/10$ per unit = 6 new units
December 2009: 663 units x $0.10 = 66.30$/10$ per unit = 6 new units
January 2010: 669 units x $0.10 = 66.90$/10$ per unit = 6 new units
February 2010: 675 units x $0.10 = 67.50$/10$ per unit = 6 new units
March 2010: 681 units x $0.10 = 68.10$/10$ per unit = 6 new units
April 2010: 687 units x $0.10 = 68.70$/10$ per unit = 6 new units
May 2010: 693 units x $0.10 = 69.30$/10$ per unit = 6 new units
June 2010: 699 units x $0.10 = 69.90$/10$ per unit = 6 new units
July 2010: 705 units x $0.10 = 70.50$/10$ per unit = 6 new units
August 2010: 712 units x $0.10 = 71.20$/10$ per unit = 7 new units
TOTAL: 719 units x annual dividend of 1.20$ = 862.80$

WITHOUT THE DRIP:
645 units x annual dividend of 1.20$ = 774$

862.80$ - 774$ = a bonus of 88.80$ coming from the DRIP of Pengrowth Energy Trust (PGF.UN).

Just Energy Income Fund (JE.UN): monthly dividend of $0.11708
In this example, we suppose that each unit cost roughly 13$
September 2009: 204 units x $0.11708 = 23.88$/13$ per unit = 1 new unit
October 2009: 205 units x $0.11708 = 24.00$/13$ per unit = 1 new unit
November 2009: 206 units x $0.11708 = 24.12$/13$ per unit = 1 new unit
December 2009: 207 units x $0.11708 = 24.24$/13$ per unit = 1 new unit
January 2010: 208 units x $0.11708 = 24.35$/13$ per unit = 1 new unit
February 2010: 209 units x $0.11708 = 24.47$/13$ per unit = 1 new unit
March 2010: 210 units x $0.11708 = 25.59$/13$ per unit = 1 new unit
April 2010: 211 units x $0.11708 = 24.70$/13$ per unit = 1 new unit
May 2010: 212 units x $0.11708 = 24.82$/13$ per unit = 1 new unit
June 2010: 213 units x $0.11708 = 24.94$/13$ per unit = 1 new unit
July 2010: 214 units x $0.11708 = 25.06$/13$ per unit = 1 new unit
August 2010: 215 units x $0.11708 = 25.17$/13$ per unit = 1 new unit
TOTAL: 216 units x annual dividend of 1.40496$ = 303.47$

WITHOUT THE DRIP:
203 units x 1.40496$ = 285.21$

303.47$ - 285.21$ = a bonus of 18.26$ coming from the DRIP of Just Energy Income Fund (JE.UN).

Yellow Pages Income Fund (YLO.UN): monthly dividend of $0.066
In this example, we suppose that each unit cost roughly 5$
September 2009: 401 units x $0.066 = 26.71$/5$ per unit = 5 new units
October 2009: 406 units x $0.066 = 27.04$/5$ per unit = 5 new units
November 2009: 411 units x $0.066 = 27.37$/5$ per unit = 5 new units
December 2009: 416 units x $0.066 = 27.71$/5$ per unit = 5 new units
January 2010: 421 units x $0.066 = 28.04$/5$ per unit = 5 new units
February 2010: 426 units x $0.066 = 28.37$/5$ per unit = 5 new units
March 2010: 431 units x $0.066 = 28.70$/5$ per unit = 5 new units
April 2010: 436 units x $0.066 = 29.04$/5$ per unit = 5 new units
May 2010: 441 units x $0.066 = 29.37$/5$ per unit = 5 new units
June 2010: 446 units x $0.066 = 29.70$/5$ per unit = 5 new units
July 2010: 451 units x $0.066 = 30.04$/5$ per unit = 5 new units
August 2010: 457 units x $0.066 = 30.44$/5$ per unit = 6 new units
TOTAL: 463 units x annual dividend of $0.80 = 370.40$

WITHOUT THE DRIP:
401 units x $0.80 = 320.80$

370.40$ - 320.80$ = a bonus of 49.60$ coming form the DRIP of Yellow Pages Income Fund (YLO.UN).

Bank of Nova Scotia (BNS): quarterly dividend of $0.49
In this example, we suppose that each stock cost roughly 45$
September 2009: 103 stocks x $0.49 = 50.47$/45$ per stocks = 1 new stock
January 2010: 104 stocks x $0.49 = 50.96$/45$ per stocks = 1 new stock
May 2010: 105 stocks x $0.49 = 51.45$/45$ per stocks = 1 new stock
August 2010: 106 stocks x $0.49 = 51.94$/45$ per stocks = 1 new stock
TOTAL: 107 stocks x annual dividend of 1.96$ = 209.72$

WITHOUT THE DRIP:
103 stocks x 1.96$ = 201.88$

209.72$ - 201.88$ = a bonus of 7.84$ coming from the DRIP of Bank of Nova Scotia (BNS).

Fortis (FTS): quarterly dividend of $0.26
In this example, we suppose that each stock cost roughly 25$
September 2009: 102 stocks x $0.26 = 26.52$/24$ = 1 new stock
January 2010: 103 stocks x $0.26 = 26.78$ = 1 new stock
May 2010: 104 stocks x $0.26 = 27.04$ = 1 new stock
August 2010: 105 stocks x $0.26 = 27.30$ = 1 new stock
TOTAL: 106 stocks x annual dividend of 1.04$ = 110.24$

WITHOUT THE DRIP
102 stocks x 1.04$ = 106.08$

110.24$ - 106.08$ = a bonus of 4.16$ coming from the DRIP of Fortis (FTS).

Sprott Inc. (SII): quarterly dividend of $0.025
In this example, we suppose that each stock cost roughly 4$
September 2009: 503 stocks x $0.025 = 12.16$/4$ = 3 new stocks
January 2010: 506 stocks x $0.025 = 12.65$/4$ = 3 new stocks
May 2010: 509 stocks x $0.025 = 12.72$/4$ = 3 new stocks
August 2010: 512 stocks x $0.025 = 12.80$/4$ = 3 new stocks
TOTAL: 515 stocks x annual dividend of $0.10 = 51.50$

WITHOUT THE DRIP
503 stocks x $0.10 = 50.30$

51.50$ - 50.30$ = a bonus of 1.20$ coming from the DRIP of Sprott Inc. (SII).

Dividend reinvestment plan (DRIP): a good passive income opportunity

Owning stocks and units from companies who pay a dividend is a good way to build a passive income. The dividend reinvestment plan (DRIP) can even make things easier for investor looking for a long term investment. If the DRIP examples I had illustrated for Pengrowth Energy Trust (PGF.UN), Just Energy Income Fund (JE.UN), Yellow Pages Income Fund (YLO.UN), Bank of Nova Scotia (BNS), Fortis (FTS) and Sprott Inc. (SII) come to work out, it’s 169.86$, out of absolutely nothing at all that I will be able to earn. But of course, all of the above is speculation. But still, it does provide a good idea on how dividend reinvestment plans work.

If you own a stocks and units portfolio, you can request your dividend to be reinvested in order to acquire new units or stocks simply by calling your broker. I did so with TD Waterhouse, and I had been able to get the DRIP from all the companies who were offering the program. My experience is one of a small investor. As a small investor, it can be tempting to just cash in, each month, the dividend earn on our banking account. DRIP is an easy and free system that can help you to reach financial freedom.