The Miracle of Dividend Reinvestment Plans (DRIPs)

I've been browsing a bookstore when I came across the book "Lazy Investor" by Derek Foster and I've heard of an investment plan called THE DRIP.

A DRIP or Dividend Reinvestment Plan, as the name obviously states, is a plan where the cash dividends of the companies you are holding are not paid to you, but automatically buy you more shares of the same company. Derek Foster has said in his book that brokers will allow you to do this - buy more shares of the company - for free, that is without the brokerage costs.

I have found out that unlike in the Philippines where a minimum brokers will charge you is P20, here in North America, minimum is around 29 dollars.. or around P1,200 per trade for the first 1000 shares.. on top of the actual cost of the shares. That is 60 times more expensive than in the Philippines. If what Derek Foster claims in his book is true, that will equate to huuuge savings in broker fees.

Now let's take a look at the principle of DRIPs a little bit closer. Warren Buffett, one of the richest men in the world today, has always been a fan of dividends, other companys' dividends that is. He always mentions re-investing the profits. So DRIPs are like Buffett's strategy isn't it?

Next, we've already mentioned the huge savings from broker fees. What about compound interest? Albert Einstein once said that compound interest is the most powerful force in the universe. What we're doing here in DRIPs is exactly just that! Reinvesting and reinvesting, with huge discounts in brokerage fees.

Unfortunately, I don't believe there is anything like this with financial brokers in the Philippines. Perhaps a financial company might consider doing this, or else I might LOL.

No wonder Derek Foster has retired by 34 years of age. He said, pick stocks that have consistently increased dividends over a ten year period. Those are winners.

I have read in the internet that DRIPs have not been widely known by the public, and at one point, were banned from being advertised in the U.S. Read more about DRIP history here: http://www.directinvesting.com/drip_learning_center/direct_investment_plans.cfm

Read an article from The Globe and Mail about DRIPs: http://www.theglobeandmail.com/globe-investor/investment-ideas/portfolio-strategy/building-wealth-a-drip-at-a-time/article2218024/

One of the financial brokers here in Canada, TD Waterhouse, has offered some insight on drip investing in their online facility. View the link to this page below:

http://www.td.com/to-our-customers/tdhelps/#psce%7Ccid=871%7Clid=1%7Ctid=001%7Cvid=a020c1cd0