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Strategies & Market Trends : Dividend investing for retirement
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To: JimisJim who wrote (30683)2/10/2019 2:38:32 PM
From: Thehammer1 Recommendation

Recommended By
sm1th

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I have a very hard time believing that brokerage firms can offer discounts on DRIP if it isn't a pass through from the company. I set up and designed one of the first street name drip programs in the USA. Most brokerage firms but their drip shares in the open market at or near the payment date. However, for firms that actually have discounts available to their shareholders, the shares are dripped through the facilities of DTCC. You typically have to declare a number of shares to reinvest at record date and DTCC will work out the payment details with the company in that the company will allocate drip shares instead of cash for that portion.

Most of the companies that offer discounts to market are typically funds, reits or some MLP's/ However, there were a few capital intensive corporations that did offer discount, the last time that I checked. Closed end funds also typically limited the discount to certain instances. For instance, if the fund was trading below NAV, the discount was eliminated or discounted. If it was trading above NAV, the discount might be on a sliding scale.

Two other comments on a company offering discounts if not actually offered via the company plan.

1) There are some very big dollar trades that are done for DRIP plans and often we had to send the trades to the block desk. If a discount is offered that represents a loss to the firm.

2) It also presents an opportunity for players to arbitrage the DRIP, in that you sell the drip shares short and cover with the drip shares and make 4%. Back in the late 70's, early 80's T offered a discount to drip and the arbs were borrowing the shares (millions), reinvesting the dividend and selling the potential drip shares short.
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