TradeKing Dividend Reinvestment Plan (DRIP)

I am a big fan of Scottrade. Having been a customer for nearly a decade (I bought my first stock ever with Scottrade in early 2002), I like what they offer to investors: broad products, friendly customer service, useful research tools and, last but not least, convenient local branch offices for in person help that you don’t find with many other discount brokers who primarily do their business online. However, even with all these nice features and services from Scottrade, there’s one thing that I dislike, the lack of free dividend reinvestment service for stocks. That’s right, Scottrade has no dividend reinvestment plan for stocks and ETFs (even though you can consider ETFs as mutual funds and Scottrade does reinvest mutual fund dividends automatically for free). I don’t know what’s the reason of not offering free dividend reinvestment to investors, but that fact does bother me a lot. I own a few dividend paying stocks in Scottrade account, including China Life (LFC), American Express (AXP) and Bank of America (BAC) and currently all dividend payouts are distributed in cash. Of course, I can buy shares of these stocks using dividends, but there are commissions involved when purchasing additional shares myself. Besides, if the payout isn’t enough to buy one share, the money will not get reinvested until there’s enough accumulation or additional fund is added to the account.

Frustrated by this, I have moved some dividend paying stocks and ETFs, like PM and MO, and  out of Scottrade and to its rival TradeKing and have avoided buying stocks or ETFs that generates dividend at Scottrade. There are two reasons for the switch:

  • TradeKing has free dividend reinvestment plan (DRIP)
  • TradeKing stock trading commission is cheap

If you have a TradeKing account, you probably won’t find an option for DRIP though. To get dividend payments from your stocks or ETFs reinvested, you need to contact TradeKing to set that up, not something you can do yourself. According to TradeKing website,

All securities with an average volume of 50,000 shares or more traded daily and that are DTC eligible may be enrolled in the DRIP. Dividends are reinvested on your behalf on the dividend payable date by our clearing firm. The reinvestment price will be the prevailing market price at the time the order is entered on the payable date. Fractional shares will be purchased in your account by dividends that do not cover the full price of one share.

As you can see from above, not every dividend paying stocks or ETFs are eligible for TradeKing DRIP program because of the daily trading volume limit. However, for high liquid stocks like BAC, AXP, PM and MO, that shouldn’t be a concern. To use TradeKing DRIP plan, you need to contact TradeKing to set it up, either for a particular security or for the entire account. When I set up the DRIP plan for my account, I used TradeKing online live chat to talk with a representative. Of course, I needed to provide some basic account information such as name and account number, etc. But it was very convenient since no paperwork was needed. As for the two options, individual stock or entire account, I recommend setting up the entire account for free dividend reinvestment because you may buy other high dividend stocks or ETFs later, so if you set DRIP up for only those stocks you own now, you will have to go through this procedure again when you add other stocks to your account.

Another benefit of the TradeKing DRIP is that you can buy fractional shares with the dividend. This means all the payout will be reinvested, not just the portion that’s enough to buy a whole share. Zecco also has a free DRIP program, but it only allows purchasing of whole shares.

If you want to learn more about TradeKing, check out my updated TradeKing review post for detailed discussion of the discount broker.

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One Response to “TradeKing Dividend Reinvestment Plan (DRIP)”

  1. tableau design |  Jan 30, 2012 at 2:01 am

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