One of the questions that comes up often is “what is the best way to manage our DRIPs in TradeStops?”
For those unfamiliar with the term, DRIP is the acronym for Dividend ReInvestment Plan. This means that dividends received on the stock or fund are reinvested into additional shares of the company.
It’s a great concept, and many TradeStops members take advantage of this. A number of publicly-traded companies offer this at no charge, and many of the brokerage firms also offer this at no charge to their clients. There are even websites available that can give you a lot of this information.
But some members have problems keeping track of their DRIP plans through TradeStops. The brokerage firms normally list just one line for each position, and you have to dig into finding each trade.
That’s where TradeStops can help. This is not an easy, just-push-one-button solution. It will take a little time to enter the information, but it’s easier to have it in one place, TradeStops, than to look it up in dozens of individual brokerage statements.
For this example, we’re going to use XLE, the energy sector ETF, and we’re going to assume that the initial purchase was 500 shares on 8/18/2015 at $69.23 per share.
Since then, there have been 5 dividends paid, and additional shares have been purchased each time.
Unfortunately, the brokerage firms don’t give you an easy breakdown of each transaction. Here is what it looks like after being imported into TradeStops.
The brokerage firm uses the date of the last dividend as the “Entry Date.” Of course, this is wrong. The “Entry Price” is also wrong as it is just the cost basis divided by the number of shares.
This can be frustrating. The information above is technically correct, but it doesn’t reflect what actually happened.
An easy solution is to create a new portfolio as a “Watch” portfolio to keep track of these purchases. Just go to the “Portfolios” tab and then “Add Portfolio.”
We’re going to add a new portfolio titled “XLE Dividend Reinvestment.”
Once this has been set up, then it’s easy to enter each of the actual transactions. In the case of XLE, we have the original purchase that was made and the five purchases from the DRIP plan.
You can see the individual transactions sorted by their “Entry Date.” Take a look at the last column titled “Dividends.” This shows you the dividends per share that have been earned for each position. This goes from a high of $2.32 per share for the original position down to $0 for the latest position. When XLE next goes ex-dividend, you will see that $0 change to the dividend per share that will be paid. That same amount will be added to each of the “Dividend” entries for the other shares as well.
Having these separate entries for each dividend paid in a DRIP plan makes understanding your entire position much easier.
For those who have been participating in the DRIP programs for years now, this could take a little time. But you don’t have to do this in just one sitting. By having this dedicated portfolio, you can add the separate purchases any time at your convenience.
This approach is probably not going to make a difference in your position sizing or when you run the Risk Rebalancer. Many investors use the DRIP plans to build up positions in several stocks for the long run so it’s possible that these types of investors will choose to ignore the SSI signals.
Please let us know if you have any shortcuts or tips if you’re keeping track of your DRIP purchases differently. We’re always learning from our members, and we appreciate your input.
Here’s to more profits, one DRIP at a time,
Tom Meyer
Members, Services
