Bryan is a young, well paid, high tech worker from Ottawa. He is looking to start trading stocks but first needs some questions answered.
I have a question for you regarding online brokerage services. I’ve read your posts about Questrade and how you use them, and I think that I understand the concept. With a $4.95 a month plan, you can purchase 495 shares, after that you pay $0.01 per share?
My question is with dividends, where does the dividend money go to? Back to your questrade account? Or do you get a cheque in the mail?
I’m 27 years old, first time home owner (in about 3 months I close) and make a pretty decent salary in the high tech sector in Ottawa, and would like to start investing some of my extra money in dividend stocks such as BMO and Royal Bank. I was wondering if you could post a really n00b post on how to get started with maybe $1000 (without posting what to buy) but all the sort of beginner questions one would need to know.
The way that Questrade works is that they have a minimum charge of $4.95/trade (<=495 shares), $0.01/share after that for a maximum of $9.95/trade. If you trade 700 shares, you’ll be charged $7 for that trade. They call it democratic pricing.
With regards to dividends, they will be deposited as cash back to your account UNLESS you instruct the discount brokerage to reinvest them for you (DRIP). Most brokerages will offer DRIP for free, however, the condition is that the dividend paid out must be enough to purchase 1 share, or else it will just sit in your account as cash.
For example, CIBC’s dividend yield is currently around 5.35% (@$65), which means that you’ll need to own approximately $4,860 (current price/yield*4) worth in order to receive enough in dividends / quarter to purchase 1 share at today’s price.
That brings me to the last point, if you want to buy individual stocks, $1,000 isn’t enough. It might be enough for a small position in 1 stock, but then where is the diversification? If you want to start with a smaller balance, I would suggest that you invest in low MER index mutual funds which will also allow for small monthly contributions. When you build up your mutual fund account, you can then consider switching the money out into a self directed account.