Back in March I purchased shares of Husky Energy (HSE), and wrote a detailed post on my reasons for buying this diversified oil and gas producer. Husky has also been one of my stock picks for the Dividend Growth Index. With its generous dividend yield of 4.9%, low payout ratio of 50%, and low debt levels, it’s no wonder investors are interested in the company.
Since that post, I’ve received a few emails from readers who are confused how to DRIP their shares. The confusion arises once the trade for HSE settles, and investors phone their broker and ask to have their shares of Husky enrolled in the DRIP (Dividend Reinvestment Plan). Husky (HSE) cannot be enrolled in the DRIP with the broker. So if you phone up your broker and say enrol me in the DRIP for Husky, they will tell you that Husky is not part of the DRIP program.
Corporate Action Notice
Each quarter on behalf of Husky, my broker TD Waterhouse mails out a Corporate Action Notice. This notice is called a Voluntary – Optional Stock Dividend, and is sent out approximately 6-weeks prior to the ex-dividend date. I’m certain other discount brokers also send out the exact same notice.
In the notice I am given two options. Option 1: Cash and Option 2: Stock. The default option is to receive my dividend as cash. In other words if I do nothing, I will receive the dividend as cash. In order to receive additional common shares, or DRIP the dividend, I simply phone TD Waterhouse and request the stock option. Voila!
Synthetic versus Full DRIP
It is important to understand that discount brokers only offer Synthetic DRIPs and not Full Drips. Full Drips are offered by transfer agents such as Computershare, where partial shares can be reinvested from the entire dividend. For a Synthetic DRIP your broker will only purchase full shares from your dividend. In other words you must own enough shares (83 shares x .30 dividend = $24.90) of Husky Energy to be able to purchase at least one share from the dividend. Of course if you have an even lot of 100 shares, which is a $30 dividend, then there is no problem. The remainder of the dividend is paid to you as cash in your account.
Why Is Husky Not Enrolled?
It would be far easier for investors if Husky Energy was simply enrolled in the DRIP program. I have no idea why they wouldn’t want to, since the discount broker would handle all the DRIP management. Perhaps that is simply not cost effective for Husky. There is also the consideration of whether a company chooses to dilute its shares for dividends, or prefers to pay out cash to shareholders. I had sent an email to Husky investor relations, to ask them why they are not enrolled for DRIPs with discount brokers, but received no reply.
Readers, do you have other stocks that cannot be enrolled for Synthetic DRIPs? Do you own and DRIP Husky?