Firstrade Free Dividend Reinvestment Plan for Stocks and ETFs

I have previously talked about dividend reinvestment plans offered for free by discount brokers such as Scottrade and TradeKing. The difference between these two is that you can invest dividend payouts from stocks and ETFs for free at TradeKing, but that’s not possible as of now at Scottrade. As I noted before, it’s kind of strange that Scottrade doesn’t allow investors reinvest dividend distributions for free because reinvested dividends will provide significant boost to the overall return in the long term and more and more discount brokers are offering the service to their customers free of charge.

Of course, TradeKing isn’t the only discount broker that has free dividend reinvestment plan. Firstrade, another discount broker that’s also widely used among small investors, also has a dividend reinvestment plan that’s free for customers. If you are not familiar with Firstrade, you can check out my Firstrade review post for details about the broker. Basically, you pay $6.95 for each online equity order, regardless the number of shares you buy or sell. As you can see the commission at Firstrade is very close to what Scottrade charges, the difference between these two is, of course, in the free dividend investment. But since TradeKing also has free dividend reinvestment and its commission is cheaper, you may ask why one would use Firstrade instead. Well, one thing that you won’t have when trading with TradeKing is free ETF investments. A couple of weeks ago, Firstrade announced its own free ETF investment service which allows investors to buy 10 diversified exchange-traded funds (ETFs) without commission charge. So if you are looking to build a portfolio that consists multiple ETFs covering different asset classes, you can go with either Scottrade or Firstrade, but TradeKing, and if you want both commission-free ETFs and free dividend reinvestment for stocks and ETFs, then Firstrade is the only choice.

Now let’s take a look at the Firstrade free dividend investment. If you know how TradeKing DRIP works (you can find out more through the above link), then the Firstrade program works in the same way. Since the free DRIP is not set as default, you will need to set it yourself after opening a brokerage account with Firstrade, if don’t already have one. And like the TradeKing program, you can either specify which particular stocks or ETFs in your portfolio you want to have their dividends reinvested automatically, in case you want to have some distributions in cash, or enroll the entire account to the DRIP program so each and every distribution will be reinvested after the enrollment.

As you can imagine, with the free dividend reinvestment program, you will receive partial shares from the reinvestment in your portfolio because, once you enroll in the DRIP, whether it’s for a single stock/ETF or for the entire account, the dividend payout will be used to buy shares even though it may not be enough to buy a whole share.

When it comes to dividend payments, my current approach is reinvesting all of them. Since I am still in the accumulation stage, growing my investments is more important then taking dividend as cash now and spending the money elsewhere. That’s the reason I opt for dividend reinvestment for both stocks and mutual funds held in my portfolio. With Firstrade, I can buy and sell some popular ETFs without commission while having dividend payments from those ETFs reinvested for free :)

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