DRIP Plans Equal Auto-Pilot Investing: Our Best Practices

When we started investing money each month in dividend stocks like Kellogg (ticker symbol: K) and Kraft Foods (ticker symbol: KFT), it was a way to use DRIP plans (dividend reinvestment plans) and DSPP’s (direct stock purchase plans) to help us diversify our long-term savings, and begin serious income investing. Coming out of the housing bubble and great recession, we also wanted a way to ensure future dividend income in a low-interest rate environment (both of these food stocks pay more yield than treasury bills and most bonds), and we wanted to stockpile money as emergency mortgage payments — even though DRIPs are far less liquid than cash. We started at $50 each for K and KFT, forcing ourselves to squirrel away $100 per month on top of our other savings and work retirement plans.

As I became more interested in DRIP plans and in having these relatively safe consumer stocks and food companies BALANCE out our other tech-heavy holdings, I started to choose other companies for monthly investments. Wells Fargo & Co (ticker symbol: WFC), one of the battered “big banks” seemed like a solid, long-term choice. We also chose the parent company of our local Sovereign Bank, which is own by Spain’s Banco Santander (ticker symbol: SAN). I felt like financials will always matter in a global marketplace, and that the Santander holding meant DRIP exposure to emerging markets (obviously Kraft too!). (That’s why lately I’ve started to look for more global dividend investing opportunities in my other accounts.)

DRIP Plans


LESSON NUMBER ONE: We could have stopped at the first two DRIP and DSPP plans, Kraft and Kellogg. Our enthusiasm for this type of investing has meant that we now hold nine (9) different stocks in DRIP plans. I’m not complaining about the obvious diversification, but since we have slowly increased our monthly investing total to $600 (or $75/each monthly in eight of these plans) — we could be adding $300 each to Kellogg and Kraft each month, which would accumulate shares VERY quickly.

LESSON NUMBER TWO: Don’t use DRIP plans to speculate. After adding the banks (Wells Fargo and Santander), I realized that one of the pummeled Irish banks (Allied Irish Banks) had a DRIP plan through Bank of New York Mellon. Since the stock had been sold off on nationalization fears, I assumed that the dollar-cost-averaging of some AIBYY stock would be smart in a long-term account, and it would perhaps turn out to be a great investment 20 years from now. The downside: without control over the exact purchase price/time and a relatively high fee, the Allied Irish Banks (ticker symbol: AIBYY) we hold is not at a great cost basis. It would have been better to TRADE this stock in my regular E*Trade portfolio and be done with it. To make matters worse, the nearly 95%-nationalized Allied Irish Banks dropped their DRIP plan to save money, so I can’t buy more except on the open market and then transfer into my DRIP account. Lesson learned… we hold 228.8315 shares of AIBYY at a market price of $0.78 which means it’s only worth $178.49. (Like a long-term option now I guess…)

LESSON NUMBER THREE: Don’t Market Time. The entire point of a DRIP/DSPP plan is that when the market goes up you buy less each month with your “contribution”, and when the market goes down you buy more. A few times in the last couple years when I thought stock prices were cheap – I had the DRIPs buy additional shares (with additional fees), only to have the stocks continue lower. So if we wanted to invest more – increase the monthly amounts and forget about it — adjusting the purchases to take advantage of market events is what the plans do automatically.

LESSON NUMBER FOUR: Trust the process. I love that we have these DRIP plans and that some day — decades from now — we will take real income from these investments — or perhaps (at worst!) sell them outright to pay off the mortgage. Now with automatic monthly DRIP contributions into GE, K, KFT , WFC, CAT,and IBM (the others SVU, AIBYY, and SAN are off!) – we trust that these plans will do their magic some day. The quarterly dividend payments of these holdings are staggered so that we would receive income January through December as I described elsewhere…

This is a snapshot of my current tracking of the DRIP Plans with the bar at the end representing the total value if each of these holdings eventually returns to its 52-week high price (our cost basis is not that high!). Of course, it’s not a huge total amount (YET!) but it’s great to have automatic savings and investments like this. At this rate — if we can maintain it $600 per month x 12 months = $7200 per year. Over 25 years that’s $180K, without any growth or dividends. That’s the direction we’re headed! (If you want to stay informed on DRIP plans, direct stock investing, income investing, or just learn from our mistakes and progress — then please subscribe to this blog on the right. Thanks!)