Dividend Reinvestment Plans (DRIPs)

Updated Saturday, May 7, 2011

Are you trying to figure out which online brokers offer Dividend Reinvestment Plans (DRIPs) and what the differences are among those plans? You have come to the right place. First, let's start with a definition of a DRIP.

Dividend Reinvestment Plans, also known as DRIPs, are share purchase agreements between an investor and the company issuing the underlying stock. As the name would imply, any dividends paid out to shareholders are converted to additional shares, with this often resulting in the creation of partial or fractional shares. Investors may wish to participate in such a plan in order to accumulate shares gradually over time (dollar cost averaging) despite having relatively small funds to begin with. This also helps to avoid the brokerage fees that would be generated with each small stock purchase in a regular brokerage account.

What we are interested in are DRIPs that are offered by brokers, which in reality are synthetic DRIPs but are generally just referred to as DRIPs. Brokers with DRIPs allow the reinvestment of dividends into additional company shares with no additional charges. Unlike traditional DRIPs, synthetic DRIPs still charge commissions for the outright purchase of additional shares. Some broker DRIPs will not allow for the creation of partial or fractional shares, so dividends that would have resulted in the creation of partial shares are simply deposited into the account as cash. The specific stocks eligible for DRIP investment and the sign up processes vary from broker to broker.

Now that we know what broker DRIPs are and the differences among the programs, let's take a look at how the programs stack up for each online broker:

DRIP OfferedFractional SharesEligible Stocks
Additional Program Details
E*TRADEYesYesRestrictions applySign up specific securities via E*TRADE web application. For a security to be eligible it must be valued at $5 or greater. Mutual funds, bonds, options, and foreign securities are not eligible
eOptionYesNoAllMail, fax or email (with signature) a letter to eOption asking to apply dividend reinvestment to all or specific stocks
FidelityYesYesAll Fidelity claims they allow DRIP investment for all securities that pay dividends
FirstradeYesYesAll Firstrade claims they allow DRIP investment for all securities that pay dividends - request DRIP via online trading platform
Interactive BrokersNoN/AN/AInteractive Brokers does not offer DRIP investment
Just2TradeYesYesRestrictions applyTo be DRIP eligible, stocks have to have 1) daily trading volume greater than 50,000 shares 2) market value greater than $5 / share 3) traded on a major exchange (NYSE, AMEX, NASDAQ) and 4) DTC eligible.  Request DRIP investment for all stocks or just specific ones by sending an email to Just2Trade
Merrill EdgeYesYesMostCall Merrill Edge to request individual securities for DRIP investment
OptionsHouseYesNoAllOptionsHouse claims they allow DRIP investment for all securities that pay dividends - email customer service to request DRIP
optionsXpressYesYesMostCall optionsXpress to activate
SchwabYesYesNot disclosedContact Schwab for specific securities eligible for DRIP investment
ScottradeNoN/AN/AScottrade does not offer DRIP investment
ShareBuilder (ING Direct)YesYesAllFrom within the ShareBuilder website, select for which holdings you would like to initiate a DRIP
SogoTradeNoN/AN/ASogoTrade does not offer DRIP investment
TD AmeritradeYesYesNot disclosedContact TD Ameritrade for specific securities eligible for DRIP investment
thinkorswimYesNoNot disclosedContact thinkorswim for specific securities eligible for DRIP investment
TradeKingYesNoCertain restrictions applyEmail or call TradeKing to sign up for DRIP investing. All securities with an average volume of 50,000 shares or more traded daily and that are DTC eligible may be enrolled.
VanguardYesYesNot disclosedContact Vanguard for specific securities eligible for DRIP investment
WellsTrade (Wells Fargo)YesYesNot disclosedCall WellsTrade to sign up
ZeccoYesNoNot specifiedEmail Zecco to sign up for DRIP investment and to find out if specific securities are DRIP eligible

In summary, brokers that offer DRIPs with fractional shares are eOption, E*TRADE, Fidelity, Firstrade, Just2Trade, optionsXpress, Schwab, ShareBuilder, TD Ameritrade, Vanguard and WellsTrade. Among these brokers, those that are also recommended for stock trading are eOption, E*TRADE, Just2Trade optionsXpress, and Schwab so we would recommend these brokers for DRIP investing.

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