TD Ameritrade reinvest dividends

TD Ameritrade Dividend Reinvestment Program (DRIP) in 2022

TD Ameritrade dividend reinvestment plan fee, requirements, and enrollment. Automatically reinvest dividends in fractional shares. Thinkorswim / TD Ameritrade DRIP plan enrollment for stocks, mutual funds, ETFs, and ADRs. Is it free?

TD Ameritrade DRIP Plan

Do you wish there was a way to have all or some of your dividends automatically reinvested with your TD Ameritrade account? Good news - there is a way to do just that which is called a DRIP. We are going to cover what a DRIP is, how to set one up with TD Ameritrade, and why you may or may not want to use a DRIP.

What is a DRIP?

The acronym DRIP stands for Dividend Reinvestment Program. When you enroll one of your securities into a DRIP, any dividends that security pays you will automatically be reinvested back into that same security to buy additional shares. TD Ameritrade offers a DRIP that gives you the ability to choose certain investments in your account to have dividends reinvested or to have all of your eligible investments in your account automatically reinvested.

What securities are eligible for a DRIP?

TD Ameritrade offers a DRIP for a huge number of securities including Domestic and Foreign Stocks, ETFs, Mutual Funds, ADRs, and Preferred Stocks. Basically, any security that pays dividends can be set up for automatic reinvestment of dividends.

TD Aemritrade Eligible DRIP securities

How do I enroll in a DRIP on TD Ameritrade?

You can either set up a DRIP through your TD Ameritrade online account or over the phone with them. You should note that you have to set up a DRIP for your stocks/ETFs and a DRIP for your mutual funds separately. The screenshot below shows the steps for where to go online to set up a DRIP yourself.

Enroll in Drip TD Ameritrade

TD Ameritrade Website

Open TD Ameritrade Account

What type of dividends are automatically reinvested with a DRIP?

Eligible dividends include regular quarterly dividends from stocks, capital gain distributions from mutual funds, and dividends from mutual funds. Rarer types of payouts from companies such as special dividends or liquidation payouts are not eligible for a DRIP and will not be automatically reinvested.

What if I can’t afford a full share to reinvest?

No problem! One of the great advantages of using a DRIP vs. manually reinvesting shares yourself is that TD Ameritrade allows you to reinvest fractional shares. As an example, if you were to get a dividend of $5 from a stock that costs $20 a share, you would be able to purchase 0.25 of a share to get reinvested.

Timing of reinvestment

One of the downsides of a DRIP is you don't have control over when your dividends are reinvested. According to the fine print of TD Ameritrade's DRIP, the dividends will be reinvested at their discretion either on the dividend payable date or within three business days after.

TD Ameritrade dividend reinvestment fee

No, it does not! Setting up a DRIP through TD Ameritrade is completely free. You don’t pay any fees or any commissions.

ADR Fees

The one type of fee that you may run into with a DRIP is with the security type ADRs (American Depository Receipt). An ADR is a special type of security that represents ownership in a foreign company but not the actual foreign company stock, hence it is called a receipt. With ADRs, you can expect to have a fee automatically deducted from your dividend by the company that sponsors the ADR.

An example of a widely held ADR is Royal Dutch Shell, symbol SHEL. If you hold SHEL and you see a line item for a fee taken from your dividend, know that it is not TD Ameritrade charging the fee, it is the sponsor of the ADR charging the fee.

Foreign tax withholding on dividends

Another nuance of a DRIP comes into play when dealing with foreign stock. Depending on what country the foreign company is headquartered in, you may have foreign taxes automatically withheld from your dividends by the foreign country’s government. If the foreign country has a tax treaty set up with the US, then you have nothing to worry about but, unfortunately, this isn’t always the case.

Do I owe taxes on dividends with a DRIP?

One of the biggest things investors get confused about with a DRIP is the fact that even though your dividends are being automatically reinvested, they are still treated as any normal taxable dividend. You might be thinking, “That’s not fair!”. Well, here is how the IRS sees it… You received the cash from the dividend like you normally would, and you chose to have it reinvested.

Just because you didn’t physically keep the cash in your account, that doesn’t mean you can avoid taxes on it. Whether you received the cash and reinvested it or whether you received the cash and took it out of your account, you still owe taxes on it for that year.

The power of compound interest with a DRIP

A DRIP allows you to benefit from what has been called the eighth wonder of the world -compound interest. Every time you reinvest dividends your total number of shares goes up. With more total shares, the size of your dividends will increase in the future (assuming your investment continues to pay dividends). This cycle keeps repeating itself and all of a sudden even those small fractional share amounts getting reinvested can add up to a significant return in the long run.

Open TD Ameritrade Account

Open TD Ameritrade Account

Dollar-cost averaging

Another benefit you receive by default with a DRIP is the use of dollar-cost averaging. Dollar-cost averaging is a long-term investing strategy where you make many small purchases of an investment without worrying about the investment’s price every time you purchase. The end goal is to have varying purchase prices that all average out to one lower overall purchase price compared to trying to invest large amounts at the perfect time only a few times.

Should you use a DRIP?

There are valid reasons for not using a DRIP such as if you need the cash from the dividends, you want control over the timing of your investments, or you want to use the cash from the dividends to invest in other things. However, if you are like most investors who are passive long-term investors then a DRIP is an excellent tool that can help you. If you have questions if a DRIP is right for you, don’t be afraid to give TD Ameritrade a call at the numbers below and talk it over with them.

TD Aemritrade phone numbers

TD Ameritrade Website

Open TD Ameritrade Account

Updated on 3/30/2022.

About the Author
Paul Johnson is a Licensed Stockbroker with 7+ years of experience in the financial services industry. Paul enjoys teaching about investing and writing about financial topics. He is a husband and father of twin boys.