Sunday, July 15, 2012

Differences in Prices Among Brokerage Firms for Reinvested Dividends

Normally, I do not publish posts over the weekend, but I wanted to segregate this topic from my frequently long posts written during the weekdays. I hope to have more analysis ready by next Sunday.

Something told the OG to compare the reinvestment prices of dividends among brokers. Perhaps, lurking deep in his unconscious mind, there was a realization that something was amiss. And, since more than one conscious thought can not occur at a time in his mush of an aging mind, it took awhile for the one discussed below to percolate to the surface.

I own some dividend paying stocks in two or even three accounts, and I am reinvesting the dividend in all accounts. You would think that each broker would have the same price.

WRONG! There was not a single common reinvestment price. Most disparities were significant on a percentage basis. I will devote a section in a later post to this topic after I perform a more comprehensive analysis which will take time.

I was shocked about what I found. The following three examples highlight the issue. In these examples, I am comparing Schwab and Fidelity. Schwab usually takes a day longer to process the dividend than Fidelity, but the following snapshots are for the same dividend payments:

ADX Schwab Reinvestment Price $10.1273
ADX Fidelity Reinvestment Price $10.4215
Schwab FNFG Reinvestment Price $8.4282
Fidelity FNFG Reinvestment Price $8.7918
Sharebuilder used a $8.48 reinvestment price for this FNFG dividend.

Fidelity had the lower price as shown in the following two snapshots:

Schwab BDGE Reinvestment Price $19.664
Fidelity BDGE Reinvestment Price $18.7464
Vanguard used a $19.625 reinvestment price for the BDGE dividend.

That is a substantial difference between Fidelity and Schwab for BDGE. 

To my knowledge, this is the kind of issue that has never been discussed in comparisons made by financial magazines of different brokers.

I requested an explanation from Fidelity and Vanguard. I am not going to waste my time with Schwab. I would not expect a satisfactory answer from any broker on this kind of issue.
Another serious issue, mentioned in two previous posts, is the differences among firms in the amount withheld for foreign taxes. Item # 2 FTE Dividend-Withholding Tax;  Item # 3 Stocks, Bonds & Politics For the recent dividend paid by France Telecom, Fidelity and Vanguard withheld 15%; while Sharebuilder, Ameritrade and Schwab withheld 30%. So at a minimum, I will no purchase dividend paying companies located in France in my Sharebuilder and the Schwab testamentary trust account. I believe that Vanguard and Fidelity made "relief at source" filings. The others did not want to go to the trouble and/or to incur the minor expense.


  1. Glad that Fidelity handled French taxes properly, they do not however handle German taxes very well. Case in point, recent Allianz dividend was taxed (and social solidarity zuschlag-ed) at the rate of 26+%, and that on the position held in IRA which by German/this country treaty are totally exempt from any taxes (akin to internal USA retirement accounts arrangements).

    German though are very by-the-book about such things - the reclamation procedure is available, although quite cumbersome. Including for example providing them with the certificate of US residency for which IRS charges, believe or not, $35. Am in the middle of going through it, will see what will happen.


    Re recent "duds" thread. I do realize most of them are in your LT category and as such "insignificant".

    I agree, we all occasionally buy a dollar ticket or two, assuming we will lose, but very few of us go on the internet and facebook/twitter/blog about the fact to everybody.

    In other words LTs are fine, losses on them natural, but covering them so extensively distracts from the most valuable part of your blog that is dominant allocations of your assets and dynamics of such.

    In other words the interesting things is where are your assets now, and where are you placing or thinking about placing your new acquisitions. 6-8% exchange traded securities, high yield bonds or just staying in cash now.

    Major new positions that is, no 50 shares of a $3 LT stock.

  2. I suspect that no retail brokerage firm will make an expensive and time consuming application to secure a better foreign tax rate.

    For FTE, the cost was .004 cents per share, or 40 cents per 100 shares. While I am not familiar with how that is done, it would probably just be a mass filing for all customers in one document. And that $.40 fee was included in the fee charged by Fidelity. Sharebuilder withheld a $2 fee and 30% for the foreign tax. Fidelity withheld a $2.4 fee and 15%. I did not realize that point until this evening. Fidelity did charge me for that 40 cents.

    Your issue with Germany sounds like it would be too much trouble.

    I would recommend that you simply avoid reading the items that deal with Lottery Ticket purchases. They are clearly identified in each post.

    I discuss virtually every investment that I make, and speculative investments will not be an exception.

    It is important for individual investors to make distinctions in the quality and risks of their investments, when making decisions on how much capital to devote to each decision. That is one reason for discussing LTs and why a limited amount of capital is devoted to each one.

    While I was willing to devote up to $10,000 in KO common stock at less than $55 per share, I would not put more than $150 in Nokia at $3.

    And, I would not judge the success or failure of even the LT "duds" by the price action over a few days or weeks. I have had a number of LTs double or more after being in the red. A recent example was PLXT which was negative for virtually the entire period of my ownership and then doubled in value on a takeover. So, I prefer to avoid myopia or instant gratification.

    Every investment decision that I make has an allocation analysis attached to it. Do I invest no more than $300 in Sandridge common but will I buy up to $10,000 in the bond fund ERC. Both are allocation of capital decisions. Every investor has a limited amount of capital to invest, and each allocation decision is part of the overall allocation process.

    Many individual investors fail, or significantly underperform an index, because they do not rationally make that allocation, not only among asset classes, but for each security in every asset class.

    For example, during the Nasdaq bubble years, many individual investors lost money by placing too much capital into companies that would not even warrant a LT buy from me.

    As noted, all other readers would regard the LT strategy as a sterling success. The snapshots of the trades can be found at the end of the Gateway Post for that topic. Other readers can see for themselves.