How do we come up with the Top 10 Canadian DRIP companies?
The annual “Top 10 Canadian DRIP companies” is purely arbitrary, but also based on the cardinal investment rules: return, safety and risk.
- Dividend yield
Top 10 DRIP should have decent dividend yield. You will notice that all of Top 10 have yield higher than 3%, mostly higher than 4%. After all, DRIP is all about dividend. - Absolutely free
All the Top 10 DRIP companies are absolutely free, meaning there is no service charge and adm charge, nor any charge on optional cash purchase (OCP). The beauty of DRIP is its low-fee or no-fee feature. Even a nominal fee will put a dent on your long-term overall return. - Discount on dividend reinvestment
All of the candidates in the pool are offering discount from 2% to 5% on dividend reinvestment. This is a big boost to your DRIP portfolio performance. You are basically buying shares at 2%-5% below market price right away. Where else can you find such a deal? - OCP/SPP availability
OCP (optional cash purchase) or SPP (share purchase plan) means the ability to buy additional shares of the company after initially set up the DRIP. Most of us start with the DRIP with small amount of investment. This feature is very important as it allows you to contribute more to the portfolio as additional money is available.
Regular OCP/SPP contribution to your DRIP portfolio is also a good way to take advantage of dollar cost averaging strategy. - Diversification
Our Top 10 DRIP companies are diversified among different sectors. This basic principle of portfolio diversification will smooth out the ups and downs of equity market, and help your portfolio to outgrow the very nature of sector rotation in the long run. - Quality of Companies
The fundamental of the companies is our last consideration. Your DRIP portfolio is perhaps your longest long-term investment. It takes years to build and grow your DRIP portfolio and reap the benefit of it. The candidates in our Top10 all have solid business track records, long history of paying dividend, and in their business for the long run.
Check back to our Top 10 list, choose your own DRIP candidates. If you have enough money to start with, buy all of the Top 10 DRIP companies. If not, choose the first 5 of them. You can start with as little as 5 or 10 shares for each company, and continue to add to your position by OCP/SPP over the time.