ineligible for dividend reinvestment?

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nirvines
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ineligible for dividend reinvestment?

Postby nirvines » Mon Oct 24, 2011 11:22 am

I have an account with Merrill Edge because I like having free trades, a free safety deposit box, and no-fees for ACAT transfers to other brokerages. However, they recently informed me that two of the positions in my Roth IRA "aren't eligible" for dividend reinvestment? One of them is VNQI (Vanguard International REIT ETF) and the other is the stock of a small local bank.

Is it typical for brokerages to exclude certain symbols from dividend reinvestment? I'd happily switch to another custodian (with no annual fee) if I knew they would definitely reinvest all my dividends, but I'm afraid that maybe other brokerages will also refuse reinvestment for certain illiquid shares (for example, I'm now afraid that even Vanguard will refuse to reinvest the dividends for my CEFs).

jebmke
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Re: ineligible for dividend reinvestment?

Postby jebmke » Mon Oct 24, 2011 11:55 am

I believe the VG brokerage accounts allow dividend reinvestment for their ETFs - not sure if you hold non-VG ETFs though.
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nirvines
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Re: ineligible for dividend reinvestment?

Postby nirvines » Mon Oct 24, 2011 12:16 pm

jebmke wrote:I believe the VG brokerage accounts allow dividend reinvestment for their ETFs - not sure if you hold non-VG ETFs though.


I understand that automatic fractional share dividend reinvestment is accomplished by the brokerage holding whole shares and dividing them among their customers in-house and off the exchange. Towards that end, Merrill Edge does allow fractional share dividend reinvestment for 6 out of my 8 holdings with them...including the Vanguard domestic REIT ETF (VNQ) along with other individual stocks and mutual funds. However, they do not allow dividend reinvestment for the Vanguard international REIT ETF (VNQI).

This leads me to believe that the reason Merrill Lynch will not accommodate fractional shares for VNQI is because there is not sufficient holdings among their customers to justify them buying the whole shares to divy up. However, since all my individual holdings are illiquid/out-of-favor (which is the reason why I own them separately from my core Vanguard index funds), even if I transfer these holdings to Vanguard there will be other shares in my portfolio which are surely unpopular with other Vanguard customers and I'm concerned that Vanguard will likewise to refuse to accommodate dividend reinvestment of these shares.

So my question is, "Is it standard practice for brokerages to refuse fractional dividend reinvestment for unpopular or illiquid shares?"

Sam I Am
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Re: ineligible for dividend reinvestment?

Postby Sam I Am » Mon Oct 24, 2011 12:45 pm

Message deleted.
Last edited by Sam I Am on Wed Oct 09, 2013 10:53 am, edited 1 time in total.

nirvines
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Re: ineligible for dividend reinvestment?

Postby nirvines » Mon Oct 24, 2011 2:27 pm

Sam I Am wrote:Short answer: Maybe. Vanguard has certain restrictions.


Ok, does anyone know which brokerage is most accommodating when it comes to dividend reinvestment?

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rob
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Re: ineligible for dividend reinvestment?

Postby rob » Mon Oct 24, 2011 2:34 pm

There are some tax issues for non US domicile stocks as far as reinvestment's for fractional shares also.... Not saying that is the issue here but it might be.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

nirvines
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Re: ineligible for dividend reinvestment?

Postby nirvines » Mon Oct 24, 2011 7:12 pm

rob wrote:There are some tax issues for non US domicile stocks as far as reinvestment's for fractional shares also.... Not saying that is the issue here but it might be.


VNQI is domiciled in Pennsylvania (at Vanguard) and traded on the NASDAQ. While the underlying positions are international, the fund is itself domestic.

I only noticed this issue recently because I'm trying to simplify/automate my management of this part of my portfolio so I can focus on more lucrative things.

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rob
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Re: ineligible for dividend reinvestment?

Postby rob » Mon Oct 24, 2011 7:22 pm

nirvines wrote:
rob wrote:There are some tax issues for non US domicile stocks as far as reinvestment's for fractional shares also.... Not saying that is the issue here but it might be.


VNQI is domiciled in Pennsylvania (at Vanguard) and traded on the NASDAQ. While the underlying positions are international, the fund is itself domestic.

I only noticed this issue recently because I'm trying to simplify/automate my management of this part of my portfolio so I can focus on more lucrative things.

Right... but I said "stocks" meaning the underlying securities not the wrapper :D

Just kick the div's to a money market fund - reinvestment is MORE complex anyway cause you will end up with a lot more lots from the small re-investments.
| | Rob | | Its a dangerous business going out your front door. - J.R.R.Tolkien

nirvines
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Re: ineligible for dividend reinvestment?

Postby nirvines » Mon Oct 24, 2011 7:31 pm

rob wrote:Just kick the div's to a money market fund - reinvestment is MORE complex anyway cause you will end up with a lot more lots from the small re-investments.


Lots don't matter because this is in an IRA. Also I have lots of small positions in this IRA so collecting them all in a money market fund to manually buy more shares would be a big pain.

I'm surprised more investors don't complain about this sort of problem.


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