I recently set my account up to automatically reinvest my monthly distributions in additional shares of LINE. This will save a small purchase fee for adding additional shares and will keep adding (roughly 5 shares) to my holdings each month. BUT, it misses the opportunity to accumulate additional cash in the account and add to holdings when stock price drops. Any advice?
New2, before I'd do it in a non-IRA account, I'd make sure that I understood any complexities I might ne confronting re the K-1. I'm not saying they'll be more than the usual horror, but I'd want to be sure.
Also new2investing has a small position if the MLP was in a taxable account and he paid a professional Tax prepared it might cost more than the Dividend. He could do his own with Turbo Tax it would be a doable learning experience. But for a small position a IRA is a better home.
I suggest not using a broker drip on linn energy, but rather accumulate the cash, and make opportunistic purchases in different assets. MLPs can get difficult to manage tax wise if one is keeps buying small amounts.
I prefer using drips when there is a real advantage. Such ETP which has an company sponsored drip with a 5% discount. Or KMR which distributes in shares so it automatically reinvests without any cost or tax issues.
With a broker drip on linn energy you would have never had the opportunity to buy LINE at the recent low price below 30. MLPs often run secondaries or issue other debt instruments providing periodic opportunities for a lower share price.
Its also helpfull to have some incoming cash for portfolio rebalancing.
uh oh seems I agree with rlp ooops :)
First, Linn does not have a DRIP program so I assume you are having the broker do the reinvestment. When do they buy the units? Do they charge a fee to do so? Will they track the cost basis (which gets progressively more complicated as time goes by with reinvestment)?
Second, of course you know you lose flexibility when you do this. The $200 or so could be accumulated and invested elsewhere or to buy more Linn if the price drops vs. the risk of buying it when you have no control.
There are other MLPs that offer discounts when you DRIP.
Lastly, you can Google the phrase "Should I reinvest dividends or take cash?" and read some of the articles that appear.
Thanks rip. Sorry, still learning about DRIP and was assuming the automatic reinvestment option was basically the same thing. My broker does not charge a fee for reinvestment so I would save bit there. I'm not sure about tracking cost basis. I assume they would as anytime I purchase more shares of any stock I already own, my account automatically recalculates my cost per share. Still weighing which I want to do, but leaning towards leaving it in reinvestment.
Right. I understand that the DRIP purchases after it goes ex-div and is thus at a lower price. I'm more referring to whether or not there is wisdom to wait for opportunities like this past week when the stock bottoms and creates even greater buying opportunity. Is it wise to store up "dry powder" for unique buying opportunities or slowly keep adding to holdings. Honestly, I'm only talking about a few thousand dollars annually, so either way won't make much difference. But, those distributions would be added to my ongoing contributions, which could give opportunity for buying at greater discounts. Anyhow, seems like there's wisdom in leaving it the way I have it for now.