Personal Investor: Enbridge and AltaGas plug DRIPs on dividends
Enbridge Inc. and AltaGas Ltd. announced this week that they are suspending their dividend reinvestment programs, known as DRIPs. That means shareholders will not be given the option of automatically having dividend payments in the form of additional shares.
Publicly-traded companies will suspend DRIPs if they feel their shares could lose value because they are being diluted on the open market.
DRIPs are normally introduced to maintain demand for a stock and provide stability in times of market turbulence.
For long-term retail investors a DRIP is one of those hidden treasures that compound over time. Shares generate dividends, which buy more shares, which generate more dividends, which buy more shares… Well, you get the picture.
They are also a good form of dollar-cost averaging because stocks are purchased at regular intervals. Shareholders can purchase more shares for their dividend dollars when the stock is trading low.
Most companies that offer DRIPs will also pick up the trading and administrative costs.
On the downside, DRIPs are still taxed as dividend income.