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Brokers with Free Dividend Reinvestment Programs

Posted By Jim On 05/17/2012 @ 7:15 am In Personal Finance | 7 Comments

Thus far, my investing in individual stocks has been confined mostly to dividend stocks and a bunch of companies I really like (and have good financials), such as Apple and Southwest (ok, mostly good financials). One of the things I researched extensively was the merits of dividend reinvestment. The idea behind dividend reinvestment is that it’s like automatic savings. For someone in my financial situation, where the dividend payments aren’t a necessary income stream, wouldn’t I rather just put it back into the holding? If I do, wouldn’t I want to do it for free, rather than pay each time? The answer to both is yes and so I needed to find a broker that offered free dividend reinvestment. Fortunately, TradeKing, where I already had an account, is one of several that offer this.

There is one large downside to automatic dividend reinvestment, it can be a pain whenever you sell the stock because you have to keep track of the various lots. And it really stinks to have to spend that time when the lots are a share or two (or fractional). There are a few smaller ones, like how you have to pay capital gains taxes [3] on the dividend even though you didn’t take any cash out, but for the most part it’s a good deal for someone in a similar financial situation.

The following brokers offer free dividend reinvestment programs, ordered in least to most expensive trade commissions:

OptionsHouse

OptionsHouse offers dividend reinvestment as long as it’s a marginable security priced greater than $5, is a US equity or US traded foreign equity, closed end mutual funds not listed on the MSDI “H” exchange, OTC, Pinksheet, or Bulletin Board, or is a Unit Trust with mandatory reinvestment CUSIPs. There are no fees to enroll in the reinvestment plan and you just need to email customerservice@optionshouse.com with your email on file. Include the name of the account holder, last four digits of the social security number, date of birth, and your OptionsHouse account number.

Stock trades at OptionsHouse cost $2.95 per trade.

TradeKing

TradeKing offers dividend reinvestment for securities with an average volume of 50,000 shares traded daily, are DTC (depository trust company) eligible, and have a price of $5+. Dividends are reinvested on the dividend payable date at the market price when the ordered is entered, with fractional shares being issued if necessary. In addition, you can also tell TradeKing to reinvest dividends for your entire account, rather than on a stock by stock basis. If set that up, then any future stocks you buy will have their dividends automatically reinvested.

You can set this up by emailing service@tradeking.com or calling 877-495-5464. Stock trades at TradeKing cost $4.95.

Sharebuilder

Sharebuilder offers free dividend reinvestment and fractional shares at no extra charge. You can change your preferences by logging into your account, clicking on the Accounts Tab, then Portfolio, and then the Dividend Reinvestment tab. From here you can set the preferences for each stock or ETF holding you have. You can read the full instructions here [4]. Market orders are $9.99 and scheduled purchases are $4.

TD Ameritrade

TD Ameritrade offers dividend reinvestment through their cleverly named TD Ameritrade Dividend Reinvestment Program. You can read the legalese enrollment form [5] but the gist of it is the same as most other DRIPs – you have the option of picking individual stocks for dividend reinvestment or have every stock in your portfolio selected. Dividend reinvestment is free (though they put language in the agreement that lets the charge for it in the future, though they don’t intend to), the trade is executed the day they receive funds (typically the next business day), and they offer fractional shares.

You can set it up by calling client services at 800-669-3900. TD Ameritrade charges $9.99 per stock trade.

Charles Schwab

Charles Schwab doesn’t have a lot of information on its website [6] about their dividend reinvestment plan, but other sites explain a system that is like many others on this list. Free dividend reinvestment on eligible stocks and offering fractional shares.

Charles Schwab charges $12.95 per stock trade.

Scottrade

Scottrade does not offer dividend reinvestment nor does it offer fractional share buying. If you want to reinvest any stock dividends, you’ll have to make a regular trade using the cash proceeds. Stock trades at Scottrade cost $7, so manual dividend reinvestment is probably not going to be a financially prudent option.

I only really looked at the discount brokers out there, I’m sure plenty of the full service ones offer the same.


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[3] capital gains taxes: http://www.bargaineering.com/articles/capital-gains-taxes-work.html

[4] here: http://www.sharebuilder.com/sharebuilder/help/topic.aspx?categorycode=&faqcode=fapost012#fapost012

[5] legalese enrollment form: http://www.tdameritrade.com/forms/TDA208.pdf

[6] website: http://www.schwab.com/public/schwab/investment_products/stocks/dividend_reinvestment?cmsid=P-981810&lvl1=investment_products&lvl2=stocks

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