Schwab ETF dividend reinvestment in Schwab account-how long?

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ChinchillaWhiplash
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Schwab ETF dividend reinvestment in Schwab account-how long?

Post by ChinchillaWhiplash »

Have a Schwab account and hold a Schwab index ETF in it. Have dividend reinvestment turned on. Dividend pay date was 12/15 and the funds showed up labeled as dividend reinvestment. Today it is still sitting there as cash. How long does it normally take to purchase the fund for reinvestment? I hold a different Schwab ETF in a TDA account and the shares showed up yesterday. Would think that Schwab would be quick for their own fund in one of their accounts. In the mean time, the price keeps going up.
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ChinchillaWhiplash
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by ChinchillaWhiplash »

Looks like the funds were purchased on 12/16 and it finally showed up on my account today.
livesoft
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by livesoft »

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mangorunner
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by mangorunner »

Was reading your posts today as I soon will be purchasing an ETF in my Schwab brokerage for the first time. I was making a dry run through the "Buy" screen and saw that "Reinvest Dividends" was an option. I'm looking at the VOO, Vanguard S&P500 Index Fund. I did not know that was possible (to set up automatic reinvestment).

What price do you get when you make that election? The Net Asset Value (NAV)? Or are you subject to the ask/bid spread and premium/discount?

Also, I assume you get fractional shares?
dukeblue219
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by dukeblue219 »

Yes, you'll get fractional shares purchased at market price. For an ETF like VOO any bid/ask spread is negligible and it closely follows NAV. I certainly wouldn't worry about that myself...
Karamatsu
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by Karamatsu »

Comparing the cost of reinvested shares with the price action on the day from Yahoo, I can't really see any pattern to the prices I've received on reinvested dividends. Sometimes it looks like I got the closing price, other times it was more mid-day. Maybe they randomize it so that nobody can front-run the reinvestment process? I find that the Schwab people are usually very good about answering questions, so it might be interesting to ask them.

Anyway it works like a charm. You can turn reinvestment on and off any time by going to the Positions screen. There will be a column that says whether a given issues is reinvested or not ("yes" or "no"). If you click on that you can choose to change the setting for that stock. What reinvestment will do is give you multiple small lots over the course of however long you hold the stock. This can make careful choice of your cost basis method important when you sell. Schwab's "Tax Lot Optimizer" usually seems to do the right thing.

I like reinvestment because it means I never have cash just sitting there, out of the market.
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mangorunner
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by mangorunner »

Thanks for the replies. I find the reinvested price question interesting. If I had received and reinvested a dividend today, at what price? There was a range from $417.28 - $420.29 with several price points in-between (bid, ask, Closing NAV on 10/25/2021, last). I wonder how it is determined?

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Karamatsu
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by Karamatsu »

What price were your new shares purchased at? You can find that on the History page. Obviously the purchases will be automated, coming as they would on the same day for all Schwab customers, so the question of how they would do it is kind of interesting. Do they combine all reinvestment orders into one and execute that at a random time? Or do they break them down into multiple blocks based on volume (to avoid a huge spike in the bid), then execute each block independently? Since they have to deal with fractional shares, it seems like they'd want to combine orders somehow, but I guess when it is all automated, that's not necessarily true. Good question for them!
UpperNwGuy
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by UpperNwGuy »

Karamatsu wrote: Fri Oct 29, 2021 8:54 pm What price were your new shares purchased at? You can find that on the History page. Obviously the purchases will be automated, coming as they would on the same day for all Schwab customers, so the question of how they would do it is kind of interesting. Do they combine all reinvestment orders into one and execute that at a random time? Or do they break them down into multiple blocks based on volume (to avoid a huge spike in the bid), then execute each block independently? Since they have to deal with fractional shares, it seems like they'd want to combine orders somehow, but I guess when it is all automated, that's not necessarily true. Good question for them!
These same questions apply equally to all brokerages, not just to Schwab.
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mangorunner
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by mangorunner »

Karamatsu wrote: Fri Oct 29, 2021 8:54 pm At what price were your new shares purchased?
I don't own any ETFs - yet - but I will, soon. I will post back to this thread after I receive my first dividend and subsequent reinvestment and have some history.
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calmaniac
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by calmaniac »

I just checked one Schwab account I have and there were 5 dividends paid over the past year. In all 5 cases the dividend reinvestment was one day after the dividend was paid. Same for the OP. It looks like the "delay" is a non-issue.

Dividend reinvestment was a big deal in the bad old days when there were large brokerage fees to buy stocks (before Vanguard started the move to lower fees). The dividend reinvestment was a 'free' way to buy stocks without the brokerage fees. Nowadays it's just a convenience.
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mangorunner
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by mangorunner »

It's good to know that the delay is not an issue - thank you - but it's the pricing in which I am most interested.
Karamatsu
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by Karamatsu »

These same questions apply equally to all brokerages, not just to Schwab.
Maybe. But the OP is asking about Schwab, and since these are funds in question owned and operated by Schwab, there could be some nuances that wouldn't apply to broker that doesn't operate the fund in question. Regardless, the best way to get a definitive answer is just to ask them.
Karamatsu
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by Karamatsu »

So I did (ask them). They wrote back, "Once your dividend payment arrives in your account, Schwab will use the fund to purchase underlying stocks the next trading day, around 10am Eastern Time. The cost basis will be the same for each customer, to ensure best execution."

It would be interesting to learn more about how this all works under the hood.
CuriousGeorgeTx
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Re: Schwab ETF dividend reinvestment in Schwab account-how long?

Post by CuriousGeorgeTx »

Karamatsu wrote: Tue Nov 02, 2021 6:05 pm
It would be interesting to learn more about how this all works under the hood.
Amen. I would like some assurance that Schwab isn’t making money out of how they are handling it. The way they hold on to cash makes me concerned of how they could be handling dividend reinvestment. (For cash, I compare how my personal Treasury Direct account works to how Treasuries I have bought at auction through Schwab work. With TD, when a security matures, the funds are in my linked bank account at something like 5 AM and are immediately available. With Schwab, they don’t show up until the afternoon, too late to transfer them out until the next day. And with the low interest on settled uninvested funds, it doesn’t feel good. Sorry to go off topic, but wanted to give a reason for my curiosity and potential concern).
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