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As a long term dividend growth investor actively building my portfolio, I am always looking for opportunities to stretch my investment dollars. Since I only have $500 – $800 to invest each month, I need to make sure I am not eating up my investment dollars to a bunch of commissions and fees.
Let’s say I wanted to buy 10 shares of a stock trading at $50 ($500 investment) through my online broker that charges $10 a trade. That is a whopping 2% commission paid out on my investment!
Most dividend investors I know (including myself) prefer to keep their investment costs under 0.5%.
I could build up my investment dollars each month and wait until my trading fees dropped below 0.5%, but I want my money sprouts working for me now!
In order to stick to my investment rules, I would need to wait 4 months ($2,000) of saving my investment dollars to keep my costs at .5% on a $10 commission! That is assuming I can still buy the stock for around the same share price.
Zero Commission Trades?
To avoid waiting 4 months to buy a stock, I have used various brokerage tools and investment platforms to keep my costs low. For example, I have been using the LOYAL3 platform for over a year to buy dividend stocks at $0 commission.
I have been slowly building positions in 7 different blue chip dividend stocks through LOYAL3. Along the way I have saved hundreds of dollars in commissions.
The only downside about LOYAL3 is that the available dividend stocks that investors can buy is limited. Sure there are a few great blue chip companies available to buy like Coca-Cola (KO), McDonald’s (MCD), and Microsoft (MSFT) from LOYAL3 – but list of quality dividend stocks is limited.
Dividend Investing Using Robinhood
A new trading platform I just heard about at the beginning of the year (2015) may be the answer. Robinhood is the latest trading platform that offers $0 trades. The big difference however compared to LOYAL3 is that investors can buy and sell all U.S. listed stocks and ETFs – not just a selected few.
I decided that I would give the new platform a try and opened an account. The setup seemed fairly easy, although investors are currently put on a waiting list before they can open a new account.
From start (joining the wait list) to finish (funds in my account), the whole setup process took about 2 weeks.
Once I got confirmation my account was funded, I did not hesitate and purchased 8 shares of AFLAC (AFL) stock using Robinhood. I had been wanting to add some shares of AFL to my portfolio for some time but always hesitated to avoid paying commission.
Note – LOYAL3 does not currently offer investors the opportunity to buy shares of AFL.
Buying Shares of AFLAC (AFL) on Robinhood
- AFL Shares Purchased – 8
- Total Cost – $468.24
- Price per Share – $58.53
- Commission – $0
If I would have bought 8 shares of AFL through my other online broker, I would have paid 2.1% in commission on this investment!
First Thoughts on Robinhood
My first overall impression of Robinhood is good. Is it perfect? Nope.
There are a few things that I don’t like about the platform, but I think the benefits outweigh any negatives. For example, investors cannot buy partial shares (unlike LOYAL3). So instead of investing $50 a month to buy fractional shares, investors need to buy whole shares.
Not a big deal for me really, unless I am trying to buy a stock with a share price in the hundreds or thousands.
Robinhood also does not reinvest dividends and instead pays cash. With the zero commissions I can certainly look the other way on this one and handle my dividend reinvestment on my own!
Other than the zero commissions, Robinhood seems to have some nice features. To some this may be a negative, but they only allow investors to purchase shares via their app (and it is currently only available through iTunes). I actually liked this feature and enjoyed buying stocks directly from my phone.
Another thing I liked was that my order was immediately placed after making it – which surprised me a little. LOYAL3 normally takes a couple days to complete your order whereas I could see my shares of AFL in my account instantly.
I am sure that my opinions will change one way or the other on Robinhood as I start using it more. For now though I am encouraged that this will be a great tool for dividend investors.
Have you used Robinhood? What are your thoughts?
An interesting proposition, but until they offer service on non-iOS devices, preferably a web-based interface, I won’t be trying them out. Hopefully things will come around soon enough in that regard.
A long-term concern I have for them is the inability to adequately monetize their customers. The no-fee thing has been tried, and unlike Loyal3 which has B2B customers, I don’t know where long-term they’ll earn enough on margin interest and other little revenue streams to make it work.
@writing2reality – good point on the iOS devices. I know they are claiming that they will offer the app to non-apple users eventually.
Yes – not sure how sustainable the zero commissions will be long term. For now, I am going to keep taking advantage of the opportunity while it is there to keep my costs at $0.
I’m curious to know how RH makes their money. Do they charge any maintenance fees for your account based on your balance like Betterment or do they receive income from another source? On the surface it sounds like an interesting platform for buying/building stock portfolios. Have you considered Sharebuilder? If you are a regular member their automatic stock trades are $4 a pop and if you are a Costco member the fee drops to $2 a trade and they allow for dividend reinvestment. Just a thought. Thanks for sharing.
@DivHut – Great question. They do not charge any maintenance fees. Per Robinhood FAQ page – the company states “accrues interest off of customers’ uninvested cash balances. It is important to note that our customers are not charged”.
They go on to say that they collect interest from margin account customers, although the margin accounts are still in beta testing.
Not sure it will be sustainable for Robinhood, but so far I like what I have seen. I am not going to do all my trading through them but will take advantage of the zero commissions on buying dividend stocks that are not offered by LOYAL3.
Interest on cash in accounts. This is part of the reason why they don’t re-invest dividends….that would make for FAR less cash for RH to earn interest on. They probably earn the federal fund rate which is currently at 1.5%??
I much prefer Ustocktrade, when I’m not on the App their Web Browser version works great. You should definitely check them out.
what are your thoughts on Motif ? it’s $10 a trade but you can create your own portfolio so if you have ten stocks you buy $50 of a month they will execute the whole thing for the $10. it’s like creating your own ETF. The other thing I do is go straight to the companies drip, most use computershare. dividend reinvesting is free and the fee to execute my automated $100 a month purchase varies by company but most of the time $1-$2 per stock
@Fadi – I have heard many people who love Motif, but I have no experience with it. I like the concept of the automated investing with it but am trying to avoid fee’s at all cost. For now, I plan to use Robinhood and LOYAL3 – which there are certainly downsides to.
I currently have just over $96,000.00 invested through Robinhood. I am thrilled. Yes, I wish they had a way to automatically reinvest my dividends, but I just handle that manually.
I catch myself checking things 5-7 times a day, and am always excited when my deposit clears and I can buy more shares.
Buying and selling has never been easier, and I can easily check to see my Total gain/loss, so that I know if I want to sell something should the dividends get too low.
All in all, I HIGHLY recommend this platform to everyone, especially dividend investors who are tired of commissions and fees.
@Michael – I couldn’t agree more about Robinhood. They have improved several things about their app that used to annoy me.
It doesn’t even bother me anymore about dividend reinvestment. I just let my balance add up and then buy 1+ shares of a stock on my buy list.
Thanks for sharing your experience using Robinhood!
I’ve been using Robinhood for less than a year now and I love the platform. Like others have said, the only thing I don’t like is the fact that they don’t reinvest the dividends. In fact, I think this app would be perfect if they made that change.
I am just getting started on robinhood and am waiting for my account to be approved however I looked at stock prices and it says that it will cost me $5 more than the stock costs to buy it. Why would this be?
You have to choose the limit buy . When you choose market I notice it goes up by 5 dollars