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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?