Dividend Reinvestment Plans: What Are The Best Stocks to DRIP?

By: GenXinvestor

best stocks to DRIP: faucet dripping dollar signsHere’s my article on the best stocks to DRIP.  This is the final post in my series on dividend reinvestment plans (DRIPs).  If you missed any of those articles, I’ve provided links to them at the end of this post.  In general, a good dripping candidate is an established company with a long history of, not only paying a dividend, but increasing it periodically as well.  Since dripping is for the long-term buy and hold investor you want to select great companies that have a long track record of successfully growing their business, and have stable, predictable earnings, and a solid history of paying dividends.

Fortunately for Canadian investors there are many companies that meet those criteria.  The best stocks to DRIP are your typical blue chips that trade on the TMX such as banks, insurers, pipeline, utility and telecom companies.  Because they offer services that virtually everyone needs and uses they are seen as good stable investments for the long term.  Some of our Canadian banks, for instance, have been around paying dividends ever since the early 1800s and will likely continue to do so well into the future!

I don’t have any magic formula for selecting my dividend stocks.  In fact, all I’ve done is to simply look at the top 10 holdings in a variety of dividend mutual funds.  I use them as my guide.  Here are the top 10 holdings of 3 of the most popular dividend funds and exchange-traded funds (ETFs):

RBC Canadian Dividend Fund

source: http://funds.rbcgam.com/pdf/fund-pages/monthly/rbf266_e.pdf

Top 10 Holdings % Assets

Toronto-Dominion Bank – 6.6%

Royal Bank of Canada – 6.4%

Bank of Nova Scotia – 6.0%

Canadian National Railway Co – 3.6%

Suncor Energy Inc – 3.4%

Canadian Imperial Bank of Commerce – 3.3%

Bank of Montreal – 3.3%

Canadian Natural Resources Ltd – 3.3%

Enbridge Inc – 3.2%

Brookfield Asset Management Inc Class A – 3.1%

iShares Canadian Select Dividend Index ETF (XDV)

source: http://ca.ishares.com/product_info/fund/overview/XDV.htm

Top 10 Holdings % Assets

Canadian Imperial Bank of Commerce – 7.07%

Toronto Dominion Bank – 6.57%

Bonterra Energy Crop – 6.49%

National Bank of Canada – 6.16%

Bank of Montreal – 5.61%

Royal Bank of Canada – 5.00%

Bank of Nova Scotia – 4.67%

BCE Inc. – 4.23%

Ag Growth International Inc. – 3.82%

Laurentian Bank of Canada – 3.81%

TD Dividend Growth Fund

source: https://www.tdassetmanagement.com/fundDetails.form?fundId=11&lang=en&site=TDCT

Top 10 Holdings % Assets

Toronto Dominion Bank – 8.20%

Royal Bank of Canada – 8.10%

Bank of Nova Scotia – 7.70%

Canadian Imperial Bank of Commerce – 7.60%

Bank of Montreal – 6.60%

Canadian National Railway Co – 4.20%

Enbridge Inc. – 4.00%

Bank of Montreal 0.95% due 3/2/2014 – 3.50%

Canadian Oil Sands Ltd – 3.30%

Manulife Financial Corp – 3.20%

As you can see, the majority of Canadian dividend funds hold about 50% of their holdings in the top 5 or 6 Canadian banks.  Beyond those companies, the rest of the top 10 holdings consist of some pipeline, utility and energy companies.  In my opinion, these are the best stocks to DRIP.  In the next 10 or 20 years it is unlikely that the top 10 core holdings of those funds will change much, if at all.

The Management Expense Ratios, or MERs, of those funds range from 0.55% to 2.03%.  Over time, research has shown that mutual fund fees have a significant impact on an investor’s returns.  For more information on why mutual fund fees will eat away a good portion of your retirement nest egg, check out my article on the Danger of Mutual Fund Fees.

Also take a look at the “why costs matter” section on Vanguard Canada’s website for more detailed explanation of fund fees and their impact on investment performance:

https://www.vanguardcanada.ca/individual/articles/education-commentary/investing/learn-about-why-costs-matter.htm

Why pay those fees when you can build your own dividend fund by directly owning shares in the same companies that the big funds invest in?  Here is a list of Canadian dividend stocks that I own and drip through company Transfer Agents:

Computershare (CS)

The Bank of Nova Scotia (BNS)

The Bank of Montreal (BMO)

Fortis (FTS)

Emera (EMA)

Suncor Energy (SU)

Transcanada (TRP)

Canadian Stock Transfer (CST)

Enbridge (ENB)

Manulife Financial (MFC)

Sun Life Financial (SLF)

Canadian Imperial Bank of Commerce (CM)

Bell Canada Enterprises (BCE)

Bell Aliant (BA)

Riocan Real Estate Investment Trust (REI)

TransAlta (TA)

Thanks for reading my post on the best stocks to DRIP.

For more information on DRIPs see my other articles below:

What Are Dividend Reinvestment Plans (DRIPs)?

How To Set Up a Dividend Reinvestment Plan (DRIP)

Dividend Reinvestment Plans (DRIPs): Their Advantages and Disadvantages

Image courtesy of sscreations / FreeDigitalPhotos.net

4 thoughts on “Dividend Reinvestment Plans: What Are The Best Stocks to DRIP?

  1. Bonnie

    Hi

    I have been reading your blog a few weeks now and I have a few questions about setting up DRIP accounts and using transfer agents. I use BMO Investorline to buy stocks(shares) with various financial instutionals and dividend ETF’s. I have received dividends quarterly or monthly, however, they are never reinvested into more shares or partial shares. I asked BMO about this and they said that they will not reinvest in partial shares, only whole shares but that I was registered for drip. Is this a synthetic drip? I am not understanding why getting a share certificate is required to register into a true DRIP account? Can I do this with my BMO brokerage agent? Or as you said it would cost $50 per certificate. Why do you use Compushare and Canada Stock Transfer and how does this differ from BMO Investorline discount brokerage? If I decided to transfer my existing funds to those to save on paying BMO commission fees every time I purchase shares, do you know if there will be a fee to do so? I am have been investing for about 6 years on BMO Investorline, and although my investments are doing ok, I would like to improve my returns and reinvesting those dividends into more shares. I know this email is long, but i would appreciate your wisdom as you seem to have a good understanding. Thanks for your attention.
    Bonnie

    Reply
    1. GenXinvestor Post author

      Hi Bonnie thanks for the question. I intend to answer it directly in a post on the subject in a day or so.

      For now, check out my other articles on DRIPs:

      What Are Dividend Reinvestment Plans (DRIPs)

      How To Set Up a Dividend Reinvestment Plan (DRIP)

      Dividend Reinvestment Plans (DRIPs): Their Advantages and Disadvantages

      Thanks!

      Reply
  2. Bonnie

    Hi again GenX,
    I read “How to set up a DRIP” however I’m still confused in my situation of already using BMO online brokerage to purchase stock(shares). If I go the transfer agent route to setup a true DRIP account so the dividends are reinvested, where does that leave the shares I already have in the Investorline account? You wrote “Since drippers are typically conscious about their investment fees and expenses my guess would be that few people actually go the brokerage route to acquire their first share.” Since I already have “shares” in with several dividend yielding companies through the online brokerage, which the dividends are not reinvested, how do I go about either making those true drip accounts with BMO or do I have to transfer them somehow to a transfer agent (CST). I also read that you can only drip non registered accounts with a transfer agent (no TFSA, RRSP or RESP’s).
    Thanks again for your attention. Its a very confusing process with many steps 🙂

    Bonnie

    Reply
    1. GenXinvestor Post author

      Hey I’ve just published the post that answers many of your questions. Hope it can help clarify the matter for you.

      Reply

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