I had discussed about the advantages/disadvantages of DRIP (Dividend Reinvestment Plan) and why I don’t do DRIP.
All 3 of my brokerage accounts (Regular, IRA for myself and IRA for my spouse) are with Scottrade and I participate in their FRIP (Flexible Reinvestment Plan). I didn’t start using this until early this year, but wish I had started it earlier.
FRIP has all the advantages of DRIP and none of the disadvantages. FRIP allows you to pool all your dividend payments (from the stocks you choose) into a separate holding area within your account. You can configure FRIP to automatically invest in stocks you pick (upto 5) on an interval (monthly/quarterly etc) you choose. You can pick up to 5 stocks to invest in as part of the FRIP transaction and this is commission free.
So this allows you to automatically invest on a regular basis without incurring commissions and it also allows you to pick and choose the stocks you want thus letting you invest in stocks that you believe are reasonably valued.
From what I have understood so far, this one sounds great and I don’t see any catch or drawbacks. Am I missing something 🙂
So far from early this year, I have accumulated few hundred dollars in my FRIP balance across all my 3 Scottrade accounts. I plan to invest this sometime in the near future when I have accumulated a sizable chunk of dollars. This could provide a means to invest small amounts without incurring the flat $7.00 commission per transaction.
Dividend Growth Journey 
Hi DGJ,
The only disadvantage I came across was at http://www.begintoinvest.com/scottrades-new-dividend-reinvestment-program-flexible-reinvestment-program/ where the author mentions there can be cases where you need substantial money in the dividend pool before it triggers a purchase. Depending on your dividend income & stock selection that may not be an issue for you though.
Best wishes!
-DL
That is true. Depending on the stocks you choose, it might be quite a while before a purchase can be made. I primarily plan to use my frip money to invest small amounts that would otherwise not make sense with commission. Hope to make a purchase once every 6 months or so.
Thanks for stopping by.
DGJ,
Thanks for the information. I didn’t know about the Scottrade FRIP before reading this article. I just opened an account with OptionsHouse ($4.75/trade) recently but might have given Scottrade a further look had I known about the FRIP. As mentioned in the other reply, the only “drawback” would be the inability to purchase fractional shares. If you’re pulling in good dividends frequently it might not be an issue. If you’re just starting out and only have small dividends rolling in, it could take a while to build up enough for a purchase. That said, I had a Scottrade account years ago and they were great. At the time $7/trade was probably the best deal around.
Regards,
Dear Dividend
That is true. When I opened the account few years ago, Scottrade was the best deal among big brokerages. But there are more options nowadays.
Thanks for stopping by.
Thanks for the info. My brokerage is Schwab and they currently don’t offer that option. I automatically reinvest the dividends into the same company when they’re paid since I want to avoid the commissions.
– Henry
That’s true. Most of the brokerages offer DRIP and Scottrade doesn’t offer it. They even started offering FRIP just few years back.
DGJ,
I really like the FRIP. I think it’s awesome for those looking to reinvest dividends, but don’t want to necessarily reinvest back into the same company.
The only real drawback is inability to purchase fractional shares, as others pointed out. But I think this is a pretty minor drawback, all considered.
I don’t personally use it because I have enough regular capital for fairly sizable purchases ($1,000 and up), but if capital became tight I would definitely use this service.
Best regards!
I too use actual new capital (1500+ roughly) to invest in new purchases. Looking to use FRIP for stocks that that I don’t want to invest big because they are either expensive or I just want to average over a period with small purchases. At least that is the plan. Like I mentioned, I just started FRIP early this year and havent made any purchases yet. So will have to wait and see how this plays out.
Thanks for stopping by and sharing your thoughts.
The FRIP was a really great idea from Scottrade and I wish/hope that other brokerages start to incorporate it. The flexibility is awesome. Since you can make changes whenever you want I’d say just keep changing the companies in your reinvest and limit them to just a few companies so you can build positions up and reinvest faster. From what I’ve read you have to have enough money to purchase 1 share of each company that you have in your reinvest pool. So unless you have large amounts of dividends coming in regularly just stick with lower $ share prices and limit the number of companies. That should get you reinvesting quite regularly and most likely adding at least one share per month. Essentially stay away from the high $ stocks like V/IBM.
That is correct. The FRIP doesn’t execute until you have enough money to purchase at least 1 share of each company in the list. I plan to use it to buy stocks in small amounts.
Thanks for stopping by.
With four brokerage accounts , I’m not in the market for another. However, this might be one I’d look at if I ever got rid of one or went to 5. The biggest drawback would be having to accumulate enough dividends to actually make a drip purchase as was mentioned. For me, I like making regular purchases at least once a month. So any extra dividends would just be added to this purchase, so I wouldn’t be incurring an extra charge anyways. I’d only be making a larger purchase. With a decent size portfolio though kicking out a lot of dividends, it would be helpful to diversify. I guess I can see both positives and negatives here.
I was kinda doing the same thing like you.. using the dividends with the purchase… But sometimes I want to buy a small amount of a stock (either I just want to get in or it is too expensive that I dont want to buy too much or just want to buy small amount to average my existing holding)…. and that is what I am looking to use the FRIP. Let’s see how this goes.
Thanks for stopping by and sharing your thoughts.
Good morning. Trying to figure out the best strategy on using the FRIP. today I currently receive about $12,000 in dividends on a yearly basis. So we can assume that I receive close to $1,000 per month based on payment date. I currently reinvest my dividends on a quarterly basis into well respected REIT’s. Frankly, the yield is too hard to pass up at the moment. So my question is this. Is it a better strategy to reinvest monthly knowing that all stocks have different EX-dividend dates?
Hi Ed,
I don’t understand why ex-dividend dates should play a role in the investment decisions. Currently I have all my Scottrade dividends going in to FRIP. Once I have accumulated a reasonable chunk, I plan to make purchases using that amount. This will be free of cost and I could purchase up to 5 stocks.
Congrats on your portfolio and dividends of about 1000/month.
Thanks for stopping by.
Scottrade isn’t offering the FRIP to new customers
Are you sure? I haven’t heard anywhere that they discontinued the FRIP program?
I just heard the same the ng from my local branch. I wanted to get my daughter’s account set up with the FRIP and the broker told me they discontinued and something else will be put in place, later in 2015. Disappointing.
I can confirm what DivyKing wrote. Heard the same thing from my local Scottrade rep. However it’s only for new accounts, existing ones remain in force.
Oh.. That’s a bummer. Need to wait and see what they replace it with as DivyKing mentioned.
Thanks for the information.
My son wanted to open IRA but I guess he should look elsewhere. I have a account with Scottrade with the FRIP option and use it every month. They are pushing new accounts away.
It is really surprising that that Scottrade is getting away from FRIP. IT was a great selling point for them when they launched it few years back. Not sure if they have a replacement plan. Will have to wait and see.
It appears that Scottrade has re-instated the “FRIP” program. Not sure what the changes are, just noticed it being offered again in one of my accounts.
Oh. Thanks for the update. I have been with the FRIP program for a year now and have been making purchases since December.
DGJ
Just stopped by my branch. Prominent pile of FRIP brochures on the desk, so it’s on.