People all over the world, young and old, rich and poor, have one thing in common: They love getting a deal - on anything.
The thrill is the same whether they're saving thousands of bucks on a new car or buying chicken breasts for 50-per-cent off at Loblaws.
So wouldn't it be great if there was a way to get stocks at a discount, too?
Well, it turns out there is. The secret: Enroll in a dividend reinvestment plan, or DRIP. Many companies - including banks, real estate investment trusts, electrical utilities, energy producers and, yes, even Loblaw Cos. Ltd. - are offering generous discounts on shares purchased through their DRIPs.
Particularly during the recession, these companies have been bending over backward to sell existing shareholders discounted stock.
In February, Royal Bank of Canada announced a 3-per-cent discount to the market price for shareholders who reinvest their dividends in more stock.
Loblaw opened a new DRIP in May, also offering a 3-per-cent discount.
Why would a company sell its stock to you at below market prices? Simple: It wants you to join (or stay in) its DRIP, which - because you're accepting new shares instead of cash for your dividends - cuts the company's financing costs.
Saving money has become a priority for many companies as they ride out the recession and volatile financial markets.
"Our DRIP program not only provides value for our shareholders but also is an efficient source of capital for RBC," a spokeswoman for the bank told me.
Since the discount was announced in February, it has "positively impacted participation rates in the DRIP," she added.
In announcing Loblaw's new DRIP, executive chairman Galen G. Weston said: "Conserving cash and increasing flexibility are priorities of the company in view of the current economic environment. The board has concluded that the plan is a cost-effective way to raise equity and at the same time enables shareholders to purchase additional shares on an attractive basis."
Companies aren't always so generous, so now's the time to look into the discounts that are out there.
You can find a list of companies with DRIPs, and their respective discounts, if any, at http://cdndrips.googlepages.com/canadiandriplist or at http://cdndrips.blogspot.com Information changes frequently, so be sure to check with the companies themselves to verify any details. You can also call or visit the websites of the two largest transfer agents, Computershare and CIBC Mellon, for more information.
(Both of the above-mentioned websites provide links to the transfer agents, as well as to a wealth of educational material about DRIPs).
Remember, the discount applies only to shares purchased with reinvested dividends, not to cash purchases of shares.
David Stanley, a retired University of Guelph professor and a DRIP enthusiast, says getting a discount is nice. But it shouldn't be the main reason for choosing one stock over another.
"Just because there's a discount doesn't mean necessarily it's a company you want to invest in," he said.
"So long as it's a quality name to begin with, a discount is certainly a little dollop of whipped cream."
Fellow DRIPper Robert Gibb, a retired school teacher in Victoria who gives free seminars on DRIPs, says getting stock at a discount isn't a guaranteed route to riches. But it benefits both the company and investors.
"It's slightly dilutive, but at the same time, it does increase the cash reserve for the company," he said.
For investors, "if you think we're in a sideways market, then maybe the discount is an advantage. But it only gives you a slight advantage."
Given the uncertainty investors are facing, they'll take any advantage they can get, whether it's at the supermarket or on the stock market.
A sampler of companies that offer DRIPs
Financial Institutions
Canadian Imperial Bank of Commerce and Royal Bank of Canada each offer a 3-per-cent discount on shares purchased through their DRIPs. Bank of Montreal and Bank of Nova Scotia offer a 2-per-cent discount, and Toronto-Dominion Bank , 1 per cent.
Energy sector
DRIP investors in the pipeline sector can get a 2-per-cent discount from Enbridge Inc. , 3 per cent from TransCanada Corp. and 5 per cent from Pembina Pipeline Income Fund . Gas and electrical utility Fortis Inc. offers a 2-per-cent discount on shares purchased through its DRIP.
Retail
Grocery chain Loblaw Cos. Ltd.'s discount for DRIP purchases is 3 per cent.
John Heinzl