From The DRIP Investor
Most Dividend Reinvestment Plans (DRIPs) have expanded the ways in which participants can sell their shares, from sending a transaction request form via the postal service to telephoning sale orders or even going online to sell shares. Investors also have the ability to provide more specific sell instructions, as a growing number of DRIPs offer the following types of sales in their plans:
Batch order sale. A batch order sale is an accumulation of all sales requests submitted together as an aggregate request. In Procter & Gamble’s plan, for example, the company’s transfer agent, Computershare, treats all sell requests received in writing as batch order sells and will sell the requested shares within three business days after the date on which the order is received by Computershare. In the case of batch order sales, the price to each selling participant is the weighted average sale price obtained by Computershare’s broker for each aggregate order placed by Computershare and executed by the broker. Batch order sales are historically the most common way shares are sold in a DRIP.
Market-order sale. Procter & Gamble’s plan permits investors to make a market-order sale by calling on the telephone or by going online. Market order sale requests received online or via telephone are placed promptly upon receipt during the market hours. Any orders received after 4 pm Eastern time will be placed the next day on the market open.
Day limit order. A day limit order is an order to sell shares when and if the stock reaches a specific price on a specific day. The order is automatically cancelled if the price is not met by the end of that trading day. Day limit orders provide a bit more control over the selling price, but there is no assurance that the limit order will be filled partially or completely.
Good-Til-Cancelled (GTC) Limit Order. A GTC limit order is an order to sell shares when and if the stock reaches a specific price at any time while the order remains open (generally up to 30 days). Depending on the number of shares and trading volume, sales may be executed in multiple transactions over more than one day.
Stop-order sale. A stop-order sale is executed when the stock reaches a specified price, at which time the order becomes a market order and the sale will be executed at the prevailing market price. As is the case with limit orders, there is no assurance a stop order will be executed, as it depends on the stock hitting the “stop” price. Also, in fast-moving markets, a stop order may get filled below the stop price.
As for which type of sell order is best, it really depends on the investor. Batch orders tend to have the lowest fees, while the more customized orders (market order, day limit, GTC limit order, and stop order) typically carry higher fees.
To find out if your DRIPs offer market, limit, or stop-order options, consult with the plan brochure or the plan’s transfer agent. Keep in mind that while DRIPs are usually friendly on the buy side, selling fees can get rather onerous, especially if you are selling lots of shares.
One way to perhaps reduce your selling costs is to move your DRIP shares to a brokerage account when you want to sell. In many instances, it is cheaper to sell the stock via a broker, especially an online broker, than via the DRIP.
Charles A. Carlson, CFA, DRIP Investor, www.dripinvestor.com, 800-233-5922, August 2014
