Coreen Sol, senior portfolio manager with Solinvest Portfolio Management at CIBC Wood Gundy in Vancouver, says the purchases have more of an impact in a weak market.
“Categorically, I would recommend a DRIP if it’s an investment that you’re holding for a long period of time,” she says, adding that the “set-it-and-forget-it” element of the plans is a big plus. It lets the compounding power of the reinvested shares go to work“The fewer times you intervene in your financial choices, the better. So set-it-and-forget-it is quite brilliant, in lots of ways. A DRIP is one more aspect of that.
“We would rather take cash dividends and redeploy as we see opportunities,” he says, adding that he will occasionally participate in a program if a company offers a significant discount to market price. A related consideration relates to the notion of dollar-cost averaging. Dividends tend to be paid quarterly, which means the shares are purchased at different times of the year at different prices. Mr. Tam says that gives psychological comfort to investors who feel better about stretching out their purchases to get an average price. However, research shows that a lump-sum purchase is a better choice most of the time.