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Dividend investing boost with Scottrade

ScottradeWhen I read about Flexible Dividend Reinvestment tool on Dividend Growth Machine blog being adopted by Scottrade, I thought that this was a great idea. Yesterday, I looked at my Scottrade account and found a link to this program already available and I decided to give it a shot.

If you have an account with Scottrade or plan on opening one, I recommend you to give it a consideration.

The program’s benefits

The program is similar to a classical DRIP program which is provided by many brokers, but there is one significant difference. A typical DRIP system normally takes all dividend income from a stock which generated the dividend and invests it back to the same stock.

The Scottrade’s program takes a different approach. It allows you to include all your eligible stocks, include them into a program and use their dividends to accumulate other stock holding, a different one from those which generated the income.

Here is an example:

Currently I hold only three stocks in my Scottrade account: AGNC, FGP, and PSEC. I could include all three stocks into the program and use the dividends these stocks generate to be reinvested into only one stock. In my account it is PSEC. So as AGNC, FGP and even PSEC pay the dividends, all those dividends will be used to purchase my PSEC holdings.

Once I accumulate enough of PSEC, I can change the distribution of the dividends to another stock, for example AGNC. Or I can distribute dividends equally into all of my holdings. In my example, 33% will go to purchase AGNC, 33% to purchase FGP and 34% to purchase PSEC.

You can play with the distribution as you need and change it any time should your priorities change. You can also select a monthly or quarterly frequency of reinvesting.

See the picture below how such distribution looks like:

Scottrade FDRIP

Click to enlarge

On the picture above you can see in the “Program settings” that I have chosen all three stocks to contribute towards the Flexible Reinvestment Program, but then I elected that 100% of accumulated dividends will be invested in PSEC. At the bottom I chose Quarterly reinvestment frequency. At the end of October the dividends are planned to be reinvested into PSEC. I will not have enough saved in the program however, there fore this investment will skip.

I found the program quite appealing to me for this reason, that if you have a small account, you can use a power of all your dividends to purchase more shares of one stock. It is a great boost and the holding growth of your portfolio will be faster.

What’s not so good?

There is one thing which makes the program slightly inefficient. The typical DRIP will allow you purchasing fractions of your stock. Scottrade’s program doesn’t allow it. It will accumulate the dividends as long as you have enough cash in the account to purchase at least one share.

In my example I elected PSEC to be bought using this program because PSEC currently trades at around $11 a share. Thus every quarter I will be able to purchase at least 3 stocks (my current quarterly dividend income is at around 36 dollars). AGNC or FGP at their current prices would allow me only 1 share every quarter. With PSEC, the holding growth would be faster.

Although waiting for accumulating enough cash may look like a negative thing, it still is minor to me to kill the entire program.

And what is absolutely best?

The best thing with the Flexible Dividend Reinvestment tool is that the program is absolutely free and reinvesting will cost you nothing. I would say, that this program is a very valid and appealing and I must say: Scottrade – bravo!





4 responses to “Dividend investing boost with Scottrade”

  1. Jake @ Common Cents Wealth says:

    That’s a neat tool. I think making as many things automated as possible is a good thing. I like how you can pick a totally different stock to reinvest your dividends in instead of just having to reinvest in the same stock. I’ll have to check this out further.

    • Martin says:

      Jake that was the exact same thing which I liked too. When you have a small account like I have in Scottrade, it will grow very slow if you use dividends from only one stock. But when you combine all your stocks to grow one stock, then it will be a great boost!

  2. I do have a Scottrade account, but I wasn’t aware of this. I’ll definitely be checking it out!

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