Dividend Investing takes a bit of time to see good results so I’m happy to report that, after 3 years of “Dripping,” I’ve finally reached the $1,000/year mark in my DRiP (dividend re-investment) accounts!
Those of you who read my blog regularly know that I’m a big fan of saving and investing small amounts of money because it’s easier to save an extra $10 or $20 a month than it is to try to outright save $100 or $500 or $1000. When you save small amounts you hardly seem to notice the money gone. The more I save and invest, the more I learn that it really is the small things that make a huge difference over time.
I first started an automatic savings / investing plan when I opened my RRSP account years ago. Since then, I’ve learned the secret of how to save money. It’s by setting up an automatic savings plan and incrementally increasing the contributions year after year.
Once I reached my RRSP annual limits, I thought I was done saving. Then they came out with TFSAs and I began saving in both of those accounts. Once they were filled I thought “Now What?” That’s when I discovered DRiPs and SPPs.
Dividend Investing with DRiPs
A DRiP is a dividend reinvestment plan and a SPP is a share purchase plan. Most large, mature companies offer these plans directly or through a transfer agent like Computershare. One of the things that appealed to me about these plans is that they offer an automatic purchase plan to buy more shares in a given company. The minimum contribution amount varies from $0 to $100 depending on the company, but most require a $100 minimum.
At the time, I thought DRiPs were great because I could buy stocks $100 at a time rather than having to save up thousands of dollars and buy them through my online discount broker. So I began sending post-dated cheques to make monthly stock purchases. Computershare now offers an automatic debit plan where, instead of me sending them a cheque each month, they just debit my bank account to make my monthly stock purchases.
By making my monthly share purchases and re-investing the dividends earned in those accounts I have finally reached the $1,000 milestone in dividend income from those accounts. I’ve already reached that milestone in my other investing accounts but what makes this milestone so special is that I reached it with money that I otherwise wouldn’t have saved.
I fund my DRiP accounts with money I get through pay raises or any kind of windfall money. As I said in an earlier post, I put all the money that I get by selling stuff on Kijiji and overtime money etc into my DRiP accounts. If I get a pay raise at work I might put some extra money toward my DRiPs. This is all money that is not accounted for in our monthly budget and that could easily be spent on “stuff.” Had I done that with the money I’d probably have nothing to show for it. But I chose to do something productive with the money and now it’s throwing off $1000/year (and growing) in passive, tax efficient dividend income.
This is a small example of how dividend investing works. If you interested in learning more about DRiPs, I’ve written a few articles on these plans that you can read about here.
Image courtesy of sscreations / FreeDigitalPhotos.net