Should I Pay Fees on Reinvested Dividends?
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When it comes to investing … I like to keep our commissions and fees as low as possible. I actually prefer to pay >pay $0 in brokerage fees< in brokerage fees for every transaction we make.
This is one of the reasons why I use LOYAL3 and Robinhood for the majority of our dividend income investments.
Neither of these brokers charge any fees or commissions on stocks that we buy and sell. There are a few limitations with each … but overall the cost savings is worth it when it comes to investing.
Another place to look for those pesky investing fees is on reinvested dividends. In the case of LOYAL3 and Robinhood, they don’t offer dividend reinvestment plans (DRiP) … so we don’t need to worry about paying fees on those dollars.
However, there are some instances where you may come across these reinvestment fees – like what we have found with a couple of our dividend stocks.
Investing in Verizon Wireless (VZ) Stock
We have owned shares of stock in Verizon Communications (VZ) since early 2014.
All of our shares we purchased (27.159) has been through Verizon’s Direct Stock Purchase Plan (DSPP) administered by Computershare. We elected to invest $50 a month in partial shares of stock to build up our position.
Our last monthly purchase came in 2016, when we decided to suspend our monthly investments.
Over the years, we have also accumulated additional shares of VZ stock by reinvesting dividends through DRiP. We invested every dollar earned (except for fees paid) back into a total of 2.133 shares.
Here are a few details on the shares that we own –
- Total Investment – $1,350.00
- Shares Purchased – 27.159
- Dividends Earned – $114.91
- DRiP Shares – 2.133
- Yield on Cost – 5.01%
While reinvesting dividends through DRiP can be a great way to accumulate additional shares … there are times when it comes at a cost.
Unfortunately, the additional shares we have bought through dividend reinvestment has cost us extra dollars in fees.
Should I Pay Fees to Reinvest Dividends?
With so many investment tools available to help you save money … I don’t think there is any reason to pay fees to reinvest your dividends.
That money should be used to reinvest into more shares of stock.
With all that being said … I must confess that we have been paying fees for several years on our Verizon Wireless DRiP shares!
Here are the fees we have paid in the past 2 years for VZ DRiP shares.
- 2016 – $4.12 fees paid from $60.55 in dividends – 6.8%
- 2015 – $4.04 fees paid from $33.49 in dividends – 12.1%
Overall, $8.16 in fees doesn’t seem like a big deal. However, that is still 8.7% of our income being wasted on fees.
If we were to pay those kind of fees on all of our dividends, we would be wasting tons of money each year.
That would have been around $165 on the $1,900+ in dividends we earned last year!
How to Avoid Paying Fees
The good news is that the majority of our stocks … we either use DRiP to reinvest our dividends without paying fees (Fidelity) or pool up the money to invest in new shares later (LOYAL3 and Robinhood).
There are a few stocks however, where we currently still pay fees to reinvest our dividends. In addition to paying fees to reinvest VZ dividends … we are also paying fees to reinvest Lockheed Martin (LMT) dividends.
Note – most recently we paid just over 5% in fees for LMT DRiP shares.
We could decide to take no action and continue paying these reinvestment fees. As I have mentioned before many times, I really don’t like to pay extra money to buy and sell shares of stock.
Therefore, I feel we need to take some action.
Since we are not currently buying shares in either of these companies (other than DRiP shares) … we have the option to transfer our shares to a different broker. That may be our best option long term … especially if we want to continue our DRiP with these two companies. However, there are some obstacles we will need to get sorted out first.
And while we absolutely love using Robinhood and LOYAL3 … transferring shares to one of those 2 brokers is not possible at this time. So we would need to have our shares for both VZ and LMT transferred from our Computershare account to our Fidelity account.
Long term … that is what we plan to do since Fidelity doesn’t charge us for dividend reinvestment.
The other option (short term) is to turn off dividend reinvestment for both of these companies in our Computershare account. This is actually what we plan to do now … especially since we are not actively buying either company.
Turning off the dividend reinvestment will allow us to receive cash dividends instead … which can then be used to reinvest in other companies using either our LOYAL3 or Robinhood accounts.
Do you currently pay investment fees? Do you have any fees associated to DRiP?
Full Disclosure – At the time of this writing, we owned shares in the following stocks noted in this post – LMT and VZ. The material above is not a recommendation to buy. Please do your own research on a company before deciding to invest.