Seeking Alpha
Profile| Send Message|
( followers)  

10 Stocks Offering DRIPs at a Discount

A free dividend reinvestment plan (DRIP) at a discount is a company-sponsored plan in which dividends are reinvested free of charge at a discount (ranging from 1% to 5%) of the recent stock price. Finding stocks that offer free DRIPs is not a trivial task. They’re out there, but a lot of work goes into searching for, and identifying, these stocks. Older lists also exist in the internet-space, but the (free) ones I have come across are outdated. By outdated, I mean either the current DRIP discount has changed, or the company has discontinued its DRIP discount all together. Nonetheless, I utilized these old lists as a starting point in my quest to find stocks that offer discount DRIPs.

In the first step of my search, I navigate to the stock-of-interest’s webpage and look for a dividend information page. If the dividend info page makes no such mention of a DRIP, I conclude that the company does not offer a DRIP, and move on to the next company. If, however, the company does have a DRIP, then I move on to the second step of my search where I examine the investor relations information to see if a DRIP discount is explicitly stated. In certain instances, this is the case (e.g. EPD). The majority of time, however, the actual DRIP discount is buried within the Prospectus of the share purchase plan. The third step of this process involves obtaining this Prospectus. Usually, the company provides a link to the Prospectus, or informs you as to which company it uses for its shareholder services (e.g. BNY Mellon). The most up-to-date DRIP discount must be obtained by browsing through the Prospectus. Usually, the Prospectus states whether there currently is a discount, and if so, the value of the discount percentage. In rare cases, the Prospectus indicates that to find out the current discount, the shareholder must call company investor relations for the current DRIP discount status. If this is the case, I assume the discount is zero and continue my search.

Enrolling in a company’s DRIP is relatively straightforward, and the specifics of which can be found in a previous article here.

Drip Discount List

The table below lists 10 stocks currently (as of 5/12/2011) offering such a feature. They are in no special order, and just represent the first 10 such stocks that I have come across.

Stock name

Stock symbol

DRIP discount (%)

First Financial Commonwealth Corp.

FCF

5

HCP

HCP

1

Health Care REIT

HCN

2

Agnico-Eagle Mines Limited

AEM

5

Anworth Mortgage Asset Corp.

ANH

3

Healthcare Realty Trust

HR

5

Independent Bank Corp.

INDB

5

Nationwide Health Properties

NHP

2

Piedmont Natural Gas Co.

PNY

5

Aqua America

WTR

5

Stock Performance

I have written a computer program which operates on historical stock data from Yahoo which computes** the returns of each of the aforementioned stocks at n= 10, 5, 3, and 1 year, respectively, using 3 different methods:

1. Adjusted return - The stock n-year return is computed using the most recent closing price, the n-year closing price, accumulated cash from dividends during the n-years, and assuming 1 share of the stock was initially purchased :

n-year return = (cash + closing price – n year closing price)/(n year closing price) * 100

2. DRIP return - The stock n-year return is computed using the most recent closing price, the n-year closing price, additional purchased shares from dividend reinvestment during the n-years, and assuming 1 share of the stock was initially purchased :

n-year return = ( (final share count *closing price) – n year closing price)/(n year closing price) * 100

3. Discount DRIP return - The stock n-year return is computed using the most recent closing price, the n-year closing price, additional purchased shares from dividend reinvestment at the current discount rate during the n-years, and assuming 1 share of the stock was initially purchased :

n-year return = ( (final share count *closing price) – n year closing price)/(n year closing price) * 100

**In all 3 calculations, the stock price has been adjusted for stock splits.

Results

All returns are compared against SPY for reference. For SPY, the DRIP return and Discount DRIP return are identical since no discount is offered.

return

Adj. (%)

DRIP (%)

Disc DRIP (%)

Adj - SPY (%)

DRIP - SPY (%)

Disc DRIP - SPY (%)

FCF

10-year

3

-17

-15

-19

-43

-41

First Financial Commonwealth Corp.

5-year

-39

-45

-45

-52

-61

-60

3-year

-40

-43

-43

-41

-44

-44

1-year

14

14

14

-11

-11

-11

HCP

10-year

208

292

295

186

266

268

HCP

5-year

75

91

91

62

75

76

3-year

24

30

31

23

29

29

1-year

21

22

22

-3

-3

-3

HCN

10-year

233

343

349

211

317

323

Health Care REIT

5-year

88

103

105

74

88

89

3-year

22

27

28

22

26

26

1-year

26

26

27

1

1

2

AEM

10-year

703

709

710

681

683

684

Agnico-Eagle Mines Limited

5-year

86

86

86

72

71

71

3-year

-13

-13

-13

-13

-14

-14

1-year

5

5

5

-20

-20

-20

ANH

10-year

175

244

256

153

218

230

Anworth Mortgage Asset Corp.

5-year

38

55

57

24

39

42

3-year

47

61

64

46

60

62

1-year

20

21

21

-5

-4

-4

HR

10-year

72

79

85

50

52

59

Healthcare Realty Trust

5-year

-7

-7

-5

-21

-22

-20

3-year

-2

0

1

-2

-1

0

1-year

0

0

1

-24

-25

-24

INDB

10-year

119

130

133

97

104

107

Independent Bank Corp.

5-year

3

5

6

-11

-10

-10

3-year

7

9

10

7

8

8

1-year

23

24

24

-1

-1

-1

NHP

10-year

229

375

382

207

349

355

Nationwide Health Properties

5-year

143

168

170

129

153

154

3-year

40

47

48

40

46

46

1-year

25

25

25

0

0

0

PNY

10-year

131

166

172

109

140

145

Piedmont Natural Gas Co.

5-year

51

58

59

37

42

44

3-year

29

31

32

29

30

31

1-year

29

29

29

4

4

4

WTR

10-year

150

168

171

128

141

145

Aqua America

5-year

9

12

13

-5

-4

-3

3-year

44

47

48

44

46

47

1-year

35

36

36

10

11

11

As evidenced by the table above, there is (excluding FCF) a larger return differential between the Adjusted and DRIP relative to the DRIP and discount DRIP. However, if an investor wishes to maximize their return, one should take advantage of the discount DRIP as it almost always provides the largest return. For ANH, for example, the 10-year discount DRIP return was approximately 1200 basis points larger than 10-year DRIP return alone.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 10 Stocks Offering DRIPs at a Discount