IBKR offers a dividend reinvestment program whereby accountholders may elect to reinvest qualifying cash dividends to purchase shares in the issuing company. Outlined below are a series of FAQs which describe the program and its operation.
1. How can I participate in the program?
Requests to participate are initiated online via Client Portal. The menu options vary by account type and are outlined below:
• Individual, Joint, Trust, IRA, Small Business Accounts – click on the User menu (head and shoulders icon in the top right corner) followed by Manage Account. In the Configuration panel, click the Configure (gear) icon for Dividend Reinvestment. Read the agreement, type your signature in the field provided and click Subscribe.
• Proprietary Trading Group STL Master User - select the Manage Traders, Traders and then View menu options. Enable automatic reinvestment for an individual trading sub account by clicking the blue pen icon in the Dividend Reinvestment column.
• Advisor and Broker Master Users - select the Manage Clients and then Dashboard menu options. On the Dashboard, click the account row for the desired client account to open the Client Account Details page. Enable dividend reinvestment by clicking the Edit link in the Account Configuration section.
Once enabled, you’ll be provided with an acknowledgement requiring entry of your electronic signature in order to click the Continue button. Automatic dividend reinvestment will be effective the next business day.
2. What accounts are eligible to participate in IBKRs Dividend Reinvestment Program?
Dividend Reinvestment is available to IB LLC, IB CAN and IB UK clients only.
3. Which securities are eligible for dividend reinvestment?
Only U.S. and Canada-listed common and preferred stocks paying cash dividends are eligible for reinvestment.
4. When does reinvestment occur?
If you are a shareholder of record as of the close of the dividend record date (see KB47) and enrolled in the dividend reinvestment program prior to the dividend payment date, IBKR will use the dividend payment to purchase additional shares of that stock on the morning of the trading day which follows confirmation of our receipt of the dividend. If a customers credit-check fails on the day dividend was paid, the system continues to check for the next 30 days and may include it in the DRIP file when the credit-check passes. In this case the system may book a delayed DRIP trade (i.e. trade date after paydate). IBKR will also look back 30 days from the date of enrollment and will reinvest any dividends paid to the account within that 30 day time period. Note that shares are not purchased via an issuer-sponsored reinvestment plan but rather in the open market.
5. At what price does reinvestment take place?
As shares are purchased in the open market, generally at or near the opening of trading and subject to market conditions, the price cannot determined until the total number of shares for all program participants have been purchased using combined funds. In the event that the purchase is executed in multiple smaller trades at varying prices, participants will receive the weighted-average price of such shares (i.e., each participant receives the same price). In the event IBKR is unable to reinvest the combined proceeds, each participant will receive shares on a pro rata basis (based on the dividend amount to which each participating client is entitled).
6. Are the full proceeds of the cash dividend available for reinvestment?
No. Only the proceeds net of commissions and taxes (if the account is subject to withholding) is reinvested.
7. Are dividends from shares purchased on margin and loaned by IBKR eligible for reinvestment?
Yes. If IBKR maintains a lien on shares as a result of a margin loan, the account holder will receive a cash payment in lieu of and equal to the dividend payment. This payment in lieu will be used to purchase additional shares of that stock.
8. Are dividends from shares loaned through IBKR’s Yield Enhancement Program eligible for reinvestment?
Yes. While IBKR makes every effort to recall shares loaned through this program prior to the dividend record date, if such shares are not recalled the account holder will receive a cash payment in lieu of and equal to the dividend payment. This payment in lieu will be used to purchase additional shares of that stock.
9. Is the dividend reinvestment subject to a commission charge?
Yes, standard commissions as listed on the IBKR website are applied for the purchase. Please note that the minimum commission charge is the lesser of the stated minimums (USD 1 for the Fixed structure and USD 0.35 for the Tiered structure) or 0.1% of the trade value.
10. What happens if my account is subject to a margin deficiency when reinvestment occurs?
If your account is in a margin deficit and can’t initiate new positions, dividends will not be reinvested, even if you have dividend reinvestment enabled. Please note that dividend reinvestment orders are credit-checked at the time of entry—should an account go into margin deficiency at any time after that, including as a result of the end-of-day SMA check and the end of Soft Edge Margin, the account will become subject to automated liquidation.
11. Can account holders elect which securities are eligible for reinvestment?
No. Dividend reinvestment can be turned on or off for the account in its entirety and cannot be elected for a subset of securities held in the account.
12. What happens to cash from dividends that is insufficient to purchase a whole share?
Should the funds be insufficient to purchase a full share of stock, the dividend will be credited to the account in the form of cash. This is true for all accounts, including those with fractional share trading permissions.
13. Does dividend reinvestment cover solely regular cash dividends or are special cash dividends reinvestment as well?
All cash dividends are reinvested.
14. What are the tax considerations associated with dividend reinvestment?
The purchase of a shares via DRIP is similar to that of any other share purchase for purposes of tax reporting. In the case of U.S. taxpayers:
- When the shares purchased via DRIP are sold they will be reported on the Form 1099B for US taxpayers in the year in which they are sold. The gain or loss will be calculated based on the FIFO method unless the account holder has selected a different method. The cost basis will be that price at which the shares were purchased and the acquisition date the date of reinvestment or purchase (not the day the dividend is paid).
- Shares purchased via dividend reinvestment are subject to wash sale calculations (i.e., if you sold a security for a loss within 30 days before or after the purchase, a wash sale will occur and that loss deferred).
- Dividend payments are subject to reporting on the Form 1099DIV as current year income even when reinvested.
In the case of non-U.S. taxpayers:
- The cash dividend is subject to U.S. tax withholding prior to reinvestment. Withholding is performed at the statutory rate or at the treaty rate, where available. All income and withholding will be reported on the Form 1042-S for the year in which the dividend payment was received.
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