One thing I see a lot of people talking about is that they don’t want to buy shares in a company if they don’t have enough to DRIP a full share each time they pay a dividend.
A lot of the time, this means you will need to put down quite a large investment to ensure you can DRIP a full share – for example, see the table below on 3 of the more popular/most analyzed stocks around, and take a look at how much of an initial investment you would need to ensure you DRIP 1 full share:
|Company||Stock Price||Dividend||# of shares Needed||Investment Needed|
First of all – don’t get me wrong – I am not saying any of these 3 would be a bad investment. In fact I own them all inside my Canadian funds. Today’s post however is for those people looking at a much smaller initial investment – with upside, and who want to ensure they can DRIP a full share. The 2 stocks I will discuss today (which I currently own) are:
Diversified Royalty ($DIV.TO)
From their website:
Diversified Royalty Corp. (“DIV”) is a multi-royalty corporation, engaged in the business of acquiring top-line royalties from well-managed multi-location businesses and franchisors in North America. DIV’s objective is to acquire predictable, growing royalty streams from a diverse group of multi-location businesses and franchisors.
Currently DIV has 3 royalty streams, which are: AirMiles, Sutton Realty & Mr. Lube. Div pays a monthly dividend, and currently yields a whopping 7.54%. The payout ratio is currently above 100%, which in most cases would be a red flag – however they are also sitting on a pile of cash, and have plans to add a 4th royalty stream soon. Once they do – their payout ratio should drop back below 100%. Mr. Lube has been a great partner for DIV – and represents the majority of their income stream – which has been growing year over year.
I believe DIV is currently trading at a discount because investors are concerned about the payout ratio (Even though management has been very clear about this, as well as future plans to reduce it). When DIV inevitably announces their next royalty deal, I would expect the share price to jump back above $3.50 (a 20% gain). In the meantime, you can sit and collect a juicy 7.5% dividend.
Moneysense also listed DIV as one of their top 50 stocks for 2019.
Total investment needed to DRIP 1 share per month: $473.60
Western forest is another company I currently own, which I think is undervalued based lumber prices and general USA uncertainty (Trump).. It is currently trading at just 10X Earnings, and trading at a big discount to its 52 week high. It also pays a quarterly dividend of 0.0225 (yielding 4.35%).
Western Forest has an impeccable balance sheet (zero debt!) and recently raised the dividend (June 2018). With a payout ratio of just 45%, the dividend is not only safe – I wouldn’t be shocked to see another increase in the future.
16% of their revenue comes from China – which could also be scaring some investors off, after the recent Huawei debacle – but as long as you are patient, I think Western Forest is a great long term play. Western Forest has acquired/upgraded some of their plants/processing which will help improve margins going forward. Western Forest has also been buying back some of their own shares, because they seem to agree the price is currently undervalued.
You can read my full post on why I originally purchased WEF HERE
Total investment needed to DRIP 1 share per quarter: $178.00
Thanks for reading & best of luck in 2019!