Scottrade Flexible Dividend Reinvestment Program Review

Brokerage:
Sun
Price:
Free

Reviewed by:
Rating:
3
On February 17, 2014
Last modified:February 17, 2014

Summary:

Scottrade Flexible Dividend Reinvestment Program adds flexibility to the traditional DRIP program by allowing dividends be used to buy stocks other than those that pay the dividends. However, such flexibility may not serve you the best.

This time last year, I wrote that Scottrade, a discount online stock brokerage that I have been using since 2001, was about to launch its own free dividend reinvestment program. I was really excited when I first heard that the program might be available in the fall of 2012 because that’s what I have been waiting for years. As a long time investor with Scottrade, I have every reason to like the broker, but one thing that’s missing from the otherwise great service from Scottrade is free automatic dividend reinvestment.

Over the years, I have gradually shifted part of my investments into stocks that pay regular dividends and a big portion of that investments is in stocks held at Scottrade. For the income generated from these dividend paying stocks, I don’t want to take it as cash distribution or use the money to buy other stocks. Rather I would like to reinvest the distribution and buy more shares of the stock that pays the dividend because, by reinvesting the dividend, I want to have a bigger payout later, at which time I may need to take the distribution as cash. However, since Scottrade doesn’t allow free dividend reinvestment, all the distributions I have received so far ended up being used to buy other stocks, not the way I want to use the payouts.

Well, the fall of 2012 has long gone and Scottrade’s dividend reinvestment is still a program in the making. Early this year, I contacted Scottrade to see when, or ever, the dividend reinvestment will be available. At that time, I even thought about moving my brokerage account from Scottrade to TradeKing because I was tired of waiting. Scottrade told me in January that the program will be available some time this year and asked for my patience.

Since I have been waiting for it for so long, I thought a few more months won’t hurt too much. So I waited. Last night, when I logged into my Scottrade account, I noticed this announcement “Coming Soon … Dividend Reinvestment on Your Terms”. So it’s finally coming? I clicked the link and was led to the “Flexible Reinvestment Program Overview” page that explains a little more what “on your terms” means:

Scottrade will soon offer a commission-free flexible dividend reinvestment program that will allow you to invest dividends from most dividend-paying stocks or exchange-traded funds that you own into most stocks or ETFs.

The program will be different from a traditional dividend reinvestment program (DRIP), which requires you to reinvest dividends back into the securities that paid the dividends. In the Scottrade program, dividends will accumulate into a pool of funds that you can use to purchase shares of almost any stock or ETF. The choice is yours.

The Scottrade program will provide significant flexibility and is designed to let you tailor your dividend reinvestment tactics to your overall investment strategy.

My suspicion from the above program description is that the program is not automatic and I have to the reinvestment myself but since it’s “commission free” I won’t pay the regular commission for reinvesting the dividend. When I contacted Scottrade about dividend reinvestment before, I was offered trading credits that, as I was told, could be used to reinvest dividends I received which accumulated into a pool of cash. With those trading credits, I could reinvest the dividends or use the dividends to purchase shares of any stock or ETF commission-free 

If this is what Scottrade has come up with after all these years, then I have to say that the time for me to move out of Scottrade has finally come because this is NOT what I wanted, a dividend reinvestment program that automatically reinvest dividends for free, the traditional DRIP.

I will need some confirmation from Scottrade on whether the Flexible Reinvestment Program has the option to let me automatically reinvest the dividend for free. If so, I will stey; otherwise, I will leave.

I don’t understand why they try to be creative here.

Scottrade Flexible Dividend Reinvestment Program adds flexibility to the traditional DRIP program by allowing dividends be used to buy stocks other than those that pay the dividends. However, such flexibility may not serve you the best.

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