Questrade DRIP: the Pros and Cons

Questrade Dividend Reinvestment Plans (DRIP) should be on your investment radar if you invest in stocks or Exchange Traded Funds (ETF). The reason is simple: a Questrade DRIP lets you reinvest your dividends in your ETF or in your stocks and the setup is simple and straightforward. Any inconveniences are, in our consideration, minor. Let’s break down what you need to know about DRIPs and how Questrade can help you build an easy to manage passive investment plan.

DRIP investing: how does it work?

The best thing about a DRIP is that it reinvests dividends. Dividends are a good indicator that your investment is growing because it represents a shareholder’s portion of a company’s profit or cash flow. It means that the company you invested in has turned a profit and decided to distribute it among the shareholders. Dividends are also known as income.

The concept of a DRIP is simple. With a DRIP, you reinvest the dividends of your investment back into the same EFT, stock, or series of securities. You buy more of the investment and it hopefully grows again, but this time you have more shares in it. You take the income portion of your investment and reinvest it again.

Let’s consider a basic example of reinvesting dividends:

You buy $10,000 in a stock with a share price of $10. You now own 1,000 shares of the company. If the stock pays a dividend of 50 cents, you will earn $500 for 1,000 shares.?

You can take the $500 you earned and reinvest it in the stock. If the price per share goes up and the dividend? payment increases, you will continue to build wealth. That is what can happen because of compounding.

The Power Behind Compounding

One of the great features of dividend reinvestment is compounding. When you continue to reinvest, you increase your investment as well as the potential future dividends: the more shares you hold, the greater your dividend. As a result, each reinvestment is slightly larger than the last last.?

For instance, let’s say you own 100 shares of securities that yield 2.5% on a $40 per share stock price. The dividend is paid each quarter. That means, you will receive a dividend of $1.00 per share annually, or a 25 cents per share dividend paid each quarter.

Why Choose a Questrade DRIP Account?

You may ask why you should join a dividend reinvestment plan when you can just reinvest stock dividends on your own. First, you may need an online broker to access some DRIPs. Second, investing with an established online broker like Questrade has additional benefits.

A Questrade DRIP is a an easy passive investment?

Questrade likens it to setting it and forgetting it. When you set up your Questrade DRIP and you choose what you want to invest in, any subsequent reinvestment is automatic. If you were to reinvest your dividends by yourself, you have to be more active in your investment. It can take up more of your time.

Questrade DRIP have no commission fees

Questrade doesn’t charge any commission fees when it reinvests your dividends. It doesn’t matter if your DRIP invests in a stock or ETF. This is really important since commissions and fees eat away at your investment’s return. Paying less fees is important, and that is why online brokers and robo-advisors are gaining popularity. With a Questrade DRIP, you keep more of your money for reinvestment because you don’t pay any commission.

This article is the shortened version of an article originally published on Hardbacon.ca by Arthur Dubois under the title "Questrade DRIP: the Pros and Cons".