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Entering a Dividend reinvestment

InvSimply

I am signed up for a Direct Reinvestment plan on my account. My brokerage reports two transactions, one showing a cash dividend and then a reinvestment transaction, If I enter them in that way, the cash dividend increases my cash balance, but the reinvestment does not decrease it. Should I be entering this as one transaction (the cash amounts differ by $0.08). Or is there a way of entering the cost of the reinvested share in the ReinvDiv transaction? Using Quicken Home & Business R43.14 (Canada).

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Mark1104

display the 1st transaction as a dividend, resulting in more cash

then display the 2nd transaction as a purchase ("buy") transaction instead of a reinvestment transaction.

Jim_Harman

Are you describing the transactions as displayed on the brokerage's website, or as downloaded into Quicken?

Is there a commission or fee associated with the reinvestment, so that the amount reinvested is less than the dividend you received? That might explain the difference in cash amounts.

Tom Young

Quicken's "Reinvestment" action does not affect cash in the Account.

Image: https://us.v-cdn.net/6031128/uploads/editor/ea/kjip5bl3zmoa.jpg

Essentially it compresses a deposit of cash into the Account - the quantity in the "Amount" column - with a Buy action - the quantity in the "Shares" column - using that cash. The result is that the shares and their cost basis appear in the Account but the two "legs" of the transaction - Dividend followed by a Buy do not.

You could, if you want, simply use the Reinvestment action instead of a Div action followed by a Bought action, but if the financial institution reports this as two separate transactions it's best to follow suit here and record it that way too.

Jim_Harman

If there is a commission or fee for the reinvestment, I think you could enter this in Quicken as one Reinvest action as shown in @Tom Young's post above.

In the Dividend Amount box you would use the amount used to purchase shares and in the Commission box you would enter the amount of the commission. Quicken records this as Reinvest plus a MiscIncX with the transfer going to the same account and the Category as _Divinc. This is a little confusing, but you end up recording the full amount of the dividend but only part of it used to purchase shares.

q_lurker

I vaguely recall (perhaps incorrectly) that Canadian tax policy on reinvested dividends differed from US policy. May want to check that out.

InvSimply

In answer to some of the questions.
@Jim_Harman I am entering the transactions manually into Quicken based on the records posted on the brokerage website, When I created the account in Quicken, I was unable to connect it to the online brokerage - RBC Direct Investing (Royal Bank of Canada). Any attempt to link the account from Quicken would only bring up the other accounts (credit card, savings, etc.) RBC blamed Quicken and vice versa. No matter, entering the transactions manually is not a huge chore.
There is no commission for the reinvestment activity, but they only purchase whole shares which accounts for the $0.08 difference
@"Tom Young" The brokerage reports two transactions and so, I will record them both as you suggest. This actually leads to the note from @q_lurker regarding Canadian tax treatment of dividends. The entire dividend amount, including the portion used for the purchase, is reported as dividend earned for tax purposes. So, the cash portion in the Quicken account will never reflect the actual cash balance. Is that the same in the US?

Tom Young

@InvSimply

In the US a reinvested dividend is reported as dividend income for tax purposes.

But if you are recording both legs of a reinvested dividend then, briefly, (assuming the order of entry is dividend paid then purchase), there will be a cash balance in the Account, cash immediately used for the purchase, resulting in no cash in the Account.

One of my brokers is Schwab and they report, and download, reinvested dividends either as a cash dividend on one day with a purchase of the stock on the next day, (in which case there is cash in the account overnight), or as a ReinvDiv action, depending on the security.

Jim_Harman

If they only purchase whole shares for reinvestment, I would expect that the whole amount of the dividend will be recorded by the Div transaction and add to the cash in the account. The cash left over after the whole-share Buy will remain in the account until there is enough to add up to an extra share after a future dividend.

q_lurker

Jim_Harman said:

If they only purchase whole shares for reinvestment, I would expect that the whole amount of the dividend will be recorded by the Div transaction and add to the cash in the account. The cash left over after the whole-share Buy will remain in the account until there is enough to add up to an extra share after a future dividend.

I would interpret it a different way — the entire dividend buys the whole number of shares. No cash left over. The dividend amount and share value on that date entitles you to 10.1 shares. You only get 10 shares. So effectively you are paying more per share than other buyers that day.

So does the $0.08 accumulate in some account over time until there is enough to buy an additional share as Jim suggests, or are you slightly overpaying as I suggest?

I don’t see anything substantially different tax-wise. Only the whole share issue. I must have mis-remembered.