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Problems Scottrade not Auto-Reinvest Dividends on any stocks/etf's

edited August 2012 in Fund Discussions
I purchased a very few stocks/etf's early this year (among them, BOND from Pimco). Found out later that Scottrade does NOT auto reinvest dividends on any etf's/stocks, but puts proceeds into cash balance - making manual reinvestment not practical due to costs.

I've been tracking the date the dividends were declared vs. the date Scottrade actually puts the proceeds into cash balance. In two of my investments, the delay is over 2 weeks, and the minimum seems to be 10 days.

Do most brokerages have the same "no auto reinvest" policy for stocks/etf's? If so, are that long of delays normal?

Comments

  • edited August 2012
    E-trade actually has a good system in terms of being able to go into a screen and enroll/withdraw DRIP (dividend reinvestment program) for ETFs/stocks. The only problem for me is that a lot of foreign stocks don't qualify (which is understandable for some of the more lightly traded names.) ETFs and most US stocks do qualify, though. Easy to go in and stop/start DRIP at any time.

    For S'trade, do you have to go in somewhere and select DRIP, or contact them? (Ameritrade you have to contact them manually for stocks/etfs or if you want to change a fund reinvestment.) I'd be really surprised if Scottrade offers no auto reinvestment at all - if so, that's a real bummer.
  • Schwab gives you the choice to reinvest or not when you make any purchase. Not sure if you can change at any time as Scott mentions at Scottrade. (Never thought about that- you think that maybe our Scott is that Scott? No wonder he's so smart!
  • Cathy, BOND dividends aren't being reinvested in Vanguard accounts either. The brokerage people say it's because it's only 5 months old and they require a year's worth of steady dividends before they'll reinvest. (It doesn't matter, I asked, that it's an etf version of a mutual fund that's been around since the Cretaceous.)

    Divs appearing in the cash account should take only a couple of days after pay date, surely no more than the # days that trade settlements take. But it sounds like you may be keying off the declaration date, rather than the pay date?
  • Cathy, declaration date of dividends is irrelevant. You need to compare the 'pay' date with the date you get a cash credit. These should be very-very close (usually under 3 days). If that's not the case, then there is a problem with the broker. Also, please note in many brokerages you need to make an active selection to participate in dividend reinvestment plan.
  • edited August 2012
    Cathy, shouldn't you be asking this question to your Scottrade local branch??? I've been with Scottrade for over a decade and find their customer service to be top notch.
  • Scottrade does not and will not reinvest equity dividends automatically or otherwise. It's just something they don't do. I use Fidelity for that purpose.

    As for the delay in posting the dividend to your account I have also noticed that Fidelity posts it on the day of and Scottrade is usually a day or two behind. Do check though as fundalarm mentioned the 'declared' date vs. the posting or 'pay' date. There can be quite a difference.
  • Reply to @Old_Joe: Not me (or is it?), but thank you for the kind words.:-)
  • Reply to @Mark: Really? That's kind of wild because it seems like such a "standard" thing.
  • Reply to @scott: True and agreed. Found it out the hard way the very first time I made an equity buy with them. I had just naturally assumed that they would reinvest in more shares but their corporate policy is to just not do it. They do it for mutual funds but that's it. So anyway now I just use them for trades and if I want the stock to be reinvested in I transfer the shares over to Fidelity. Just depends where the available cash is from my daytrading activities.
  • Reply to @Hiyield007: Hi Hiyield007. It's nice to see all these new names in MFO.

    My experience with Scottrade Customer Service has been dismal. 9 out of 10 times I either receive the wrong answer, a misleading answer, or no answer at all. In some cases it has cost me money... in others, just extreme annoyance. This has been true equally of their online "contact me" customer service (who just deletes my history if they decide not to answer), and my local Scottrade office (who has given me the wrong information several times).

    I am more frequently thinking of changing brokerages now. However, it took so much time and trouble just to get my cost basis/history transferred when Scottrade forced us to apply for a brand new account when all we did was change the name of the account to a Trust (which had the same EIN#/tax# as the original one).
  • Reply to @scott: Thanks, Scott! I did receive a call from local ST rep regarding this.... but received wrong information regarding another matter. After 15 minutes of him trying to show me how to track ONLY cash balance information online (so I can easily see which investments' dividends were applied to cash balance and when), but ending up finding out that it cannot be done, I forgot what was said about the DRIP. So thanks for reminding me... I will contact them again.
  • Reply to @Old_Joe: Thanks Old Joe. I did have an account with Scwab, but the $49 trade fee for non-ntf funds just too much - especially during the time I was fast learning with everyone here and changing my investments more frequently until I found a good balance.
  • Reply to @AndyJ: Thanks, Andy. It would be nice if Vanguard (or other brokerage) allowed auto-reinvest without charge for all etf's/stocks, etc., so it's interesting that Vanguard said the reason was the newness of BOND, and not just a general policy.
  • Reply to @fundalarm: Thanks fundalarm. I just saw this comment from Andyj also. Another novice question. Where can I find the "Pay" date for these investments? I have been using M*'s "Recent Dividends" or "Latest Distributions" EX date to compare the two.
  • Reply to @Mark: Thanks, Mark. I must be using the wrong dates since several here have mentioned the difference between "declared" and "pay" dates - so I've asked above how to find "pay" dates.

    I'm just reading your response to Scott re Fidelity. They DO have auto-reinvesting for stocks/etf's without any fees?
  • edited August 2012
    Reply to @CathyG: I know E-trade/Ameritrade have it with no fees, but E-trade makes it particularly easy - you go into a section and just check what you want to have reinvest and click submit, then it is approved or not (although most US stocks should work and mutual funds/etfs should work) within a day or two.

    Ameritrade offers better customer service, but 180 day holding period for NTF funds. E-trade's customer service can be a little so-so at times (uneven), but you can trade on foreign exchanges, there's a good list of no commission fee ETFs (better than Ameritrade's) and I think Etrade's interface is good in terms of finding market information - what companies are reporting today, etc. Etrade's TF funds are $19.99 as well, vs $49.99 for A'trade.

    I know people that like Fidelity as well.

    Funds should have listed a "record date" (holders as of this date get the dividend), an "ex-dividend" date (the date the dividend is removed from the price) and pay date
  • edited August 2012
    Reply to @CathyG: Fidelity does not charge a fee for reinvestjng dividends. But there are always but's. First, I believe the default option is for the dividend to be deposited into your cash account (each brokerage account has an associated cash position). While looking at your account press on the 'Select Action' link and slide down to choose 'Update Accounts'. When that page opens select 'Dividends and capital gains.' A page will open with a table allowing you to choose how to handle these deposits for each security that you own that allows reinvestment in more shares. Press the appropriate button to make changes. Be aware that certain equities like a preferred stock don't allow reinvestment so you won't see choices/options for those.

    Second, when reinvesting you dividends in additional shares you don't necessarily get the ex-dividend price. For example, if you own a $2 stock and they pay a $1 dividend you may not be buying more shares at a $1. Also, not all equities technically allow reinvestment of dividends in more shares. What Fidelity does is collect (buy) enough shares ahead of the ex-dividend date to parcel out to those shareholders who want additional shares. Whatever those shares cost will be your reinvestment price which may be higher or lower than you expect. Other equities such as certain MLP's and CEF's provide a discount to current shareholders when dividend proceeds are reinvested in additional shares. Bottom line it's like opening up a box of chocolates - you never know what you're going to get ahead of time down to the last $0.001 penny.
  • Reply to @CathyG: ex date is not when pay date is. it is when the share value adjusts downwards for the amount of the upcoming dividend and shares purchased that day are no longer eligible to receive the dividend. Some ETFs have just days between EX and Pay date; Closed End Funds paying monthly often "go Ex" on the 13th of the month with the Pay Date on the last business day of the month or the first business day of the following month. For individual equities paying quarterly, the delay between Ex and Pay is often 45 days. Each company announcing dividend will have the Ex/Record/Pay - dates information in its press release (I usually go to Bloomberg terminal if i need the exact dates.) I attached the latest for Nuveen's funds, for example. http://finance.yahoo.com/news/nuveen-closed-end-funds-declare-223900827.html
    You could google the definition of the dividend related dates to get a better understanding.
  • Reply to @CathyG: Cathy, Hiyield007 is Junkster from FA.
  • Reply to @scott: Thanks for your follow-up, Scott. I received the following response from Scottrade, so it sounds like ST does not have option for them to auto reinvest ETFs/Stocks..

    "We do not currently offer dividend reinvestment for stocks or Exchange-Traded Funds (ETFs). Cash dividends paid to your account are added to your available money balance. The current credit interest rates paid on cash balances is available on our Credit Interest Rates page.
    Currently, automatic dividend and capital gain reinvestment is only available for mutual fund positions.
    We offer the option to have cash dividends mailed from accounts automatically. Accrued dividend balances are mailed twice monthly, on the second and last Wednesday. In order to request this automatic payment option, please call your local Scottrade team.
    If you wish to participate in a dividend reinvestment program (DRIP), you will need to sign up directly through the transfer agent of the company in which you own stock.
    If the security in question is eligible for transfer through the Direct Registration System (DRS), you can have your shares transferred to an account with the company's transfer agent at no cost. You will need to complete a Direct Registration System Request - Outgoing form and submit it to your local Scottrade team for processing. This form is available online through our Forms Center."

    Re other brokerages... I guess they all have some negatives, so it's just a matter of choosing the one where the negatives are least important to you.

    As far as you know, do ANY of these brokerages automatically transfer the history and cost basis of all investments if you transfer investment accounts/portfolios?

    Re "Record", "Pay Date", etc. I have only been checking these through M*, so another novice question, if that's ok. How do I access current "record dates", "Pay Dates", etc.? Do I need to try and find the web site for each etf/stock to see if I can locate these there, or do you know of one site that may have these information for most etf/stocks?

  • Reply to @Mark: Thanks for your follow-up, Mark. I don't have a Fidelity account, but did post Scottrade's response to my reply to Scott above. It sounds like Fidelity is making an effort to assist customers in reinvesting etf's/stocks by taking an extra step to purchase on their own. If this type of extra service is typical of them, then their much higher $49 per trade of MFs could be because of the extra service value.
  • Reply to @fundalarm: Thanks so much, fundalarm, for your very concise follow-up explanation. Your link also really gives me a much better idea of what to look for.

    P.S. I didn't know what "Bloomberg Terminal" was, but found nice answer in Wikipedia. Am I correct in reading that you need a subscription, which Wiki says is almost $2000/month?
  • Reply to @CathyG: Re: your last question. If you enter the equity symbol in the 'Quote' or 'get quote' box on Scottrade you will see a mini-table of data showing you the distribution, ex-date, pay-date and so on. At Fidelity you need to click on the 'research' tab and then the 'earnings & dividend' tab to see the same.

    FWIW - Fidelity's TF for non NTF funds is $75. I believe Schwab is the firm that charges $49. That aside, if I want a position in a fund that Fidelity has, but charges me to buy, I will sometimes make the buy at Scottrade (assuming it's also available there) and then have the fund transferred to Fidelity if that's where I want to hold it. Fidelity does NOT charge to sell the fund. Granted it's Mickey Mouse but oh well. You always have to check to make sure that the two firms both carry the fund of interest first though. Sometimes they may each carry the same fund but not the same share class (i.e. a,b,c,x,y,z)
  • Reply to @Mark: PERFECT! Thanks so much, Mark! I haven't used ST's "get quote" since I use M* and other sites for almost all my research - so it is really nice that I can locate the information I need for this easily.

    Your transfer technique which saves the $75 non-ntf buy fee is a great idea.
  • Reply to @CathyG: Yes, to your P.S. I use it for work.
  • My limited experience with Scottrade left me with the impression that Scottrade and dividends are incompatible. Back when Scottrade would let you trade all funds NTF (a decade ago), I experimented by putting a little money into a bond fund (straight mutual fund, nothing fancy). Each month I would have to check as Scottrade was days late in getting the dividend reinvestment recorded. They botched things so badly that they wound up showing negative dividends on my 1099. (That was after correction; I think that before correcting, they reported the same dividends on two year's 1099s.) They have gotten better since, but only because it was virtually impossible to handle things worse.

    Mark gives a good description of how dividend reinvestments are handled for securities that are exchange traded (stocks, ETFs, etc.). These days, most brokers will perform their bookkeeping magic to reinvest dividends on at least all the popular securities. Scottrade's the rare bird here.

    [BOND may be a pseudo-clone of Pimco Total Return (but with a somewhat different strategy that doesn't use derivatives), but it is still a different investment. Common sense suggests that brokers should start supporting dividend reinvestments for a security once it becomes popular, as BOND has, not once it reaches a certain age. But when has common sense guided this business?]

    Schwab now charges $76 to buy a TF fund, zero to sell. (Reestablishing the standard $1 difference between Fidelity and Schwab on various commissions.) The "transfer shares" technique of circumventing Fidelity's $75 fee has its limitations. If you're transferring from a brokerage, that brokerage may charge an ACAT (transfer) fee; Fidelity will often reimburse you for a taxable account transfer fee, but that reimbursement is shown as income (you owe taxes). They've told me that they won't reimburse the ACAT fee for an IRA transfer.

    Finally, regarding transfer of history and cost basis: Pre-2012 (funds), pre-2011 (stocks), brokers had no obligation to keep track of costs. That they did so was a courtesy, and you had no right to rely on any information they provided to help you with your taxes (outside of the "official" 1099s and such). I doubt whether any brokers transfer that information. Post 2011 (post 2010 for stocks), brokers are obligated to transfer history and cost info. But your rights to rely on that information are still limited. I think a case could be made for relying on the history aspect (when you bought and sold, how many shares and at what price), but you're still on your own with the cost basis. The brokers have to report it, but they're not required to get it right (in fact, the IRS has rules that requires them to get it wrong in some situations). You have the obligation to use the history information to get the cost basis right.
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