Investors typically trade through a discount broker or bank for a commission fee of about $5-10. That’s very cheap compared to the commissions paid in the old days.
It can get even better. You can invest for few to no costs with share-purchase plans or stock-purchase plans (SPPs) and dividend-reinvestment plans (DRIPs).
Stock-purchase plans
Many companies offer SPPs, which allow investors to buy shares of a stock directly, often for no additional cost to what you pay for the shares, so investors can save the $5-10 they’d pay at a discount broker or bank.
SPPs are great for small investors who want to buy shares of a company over time. Without the hindrance of commission fees, they can invest as little as $25 each year.
Fortis Inc. (TSX:FTS)(NYSE:FTS) and Telus Corporation (TSX:T)(NYSE:TU) are known for paying dividends for a long time. Both offer SPPs and DRIPs.
Fortis allows investors to apply for its SPP by filling the application form available on its website and investing as little as $25 per year and as much as $20,000 per year. Telus offers its SPP and DRIP via Computershare.
In either case, you can invest much smaller amounts each time, such as $50 per month, than you would when you invest at a broker or bank to make the commission fee worthwhile each time.
For the latter case, an investor would need to invest at least $500-1000 to pay a maximum 1% commission fee of $5-10 on the stock.
Dividend-reinvestment plans
Compounded returns become powerful over decades when you combine SPPs with DRIPs. In Canada, you can reinvest dividends at your bank for full shares.
DRIPs done through Computershare or at the company level (e.g., via Fortis) allows for partial shares.
Moreover, some DRIPs purchase stocks at a discount to the average market price of the shares. Fortis offers a 2% discount on the purchase of common shares, issued from treasury, with the reinvested dividends.
Why are Fortis and Telus good for SPPs and DRIPs?
Fortis has increased its dividend for 43 consecutive years. With a payout ratio of about 65% and its earnings per share (EPS) estimated to grow about 6% per year in the next few years, the utility can grow its dividend per share (DPS) at a compound annual growth rate (CAGR) of 6% through 2021, as management said it would, without big changes in its sustainable payout ratio.
Telus has increased its dividend for 13 consecutive years. With a payout ratio of about 70% and its EPS forecasted to grow 6-8% per year in the next few years, the telecom can meet its target to grow its DPS at a CAGR of 7-10% from 2017 through 2019.
Investor takeaway
SPPs are great for long-term investors who want to scale into stable businesses, such as Fortis and Telus, over time and save some dollars. Combined with DRIPs, investors can build some serious wealth by the time they retire decades later.
