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I am trying to figure out which program provides best pricing for ETFs.
I know the subject is mentioned on and off in various other threads and I thought we should revisit the subject and have a dedicated thread to update any developments.
Ultimately it comes down to the market. Whether Schwab and Fidelity reinvest your own dividends at some fixed or random time of day, or give you the average cost they get for all reinvested divs, or use some other algorithm, it's the vagaries of the market that drives your reinvestment price.
If you don't think you're getting the price you want, you could always take the div in cash and place a limit order yourself. At least you could at Fidelity. Schwab doesn't offer "slices" of any securities except S&P 500 companies, and even then it doesn't accept limit offers.
I am not worried about cash being deposited into the account instead of fractional shares. I am more focused on which brokerage reinvests div on ETFs at the most advantageous way or at least in a neutral way, without giving an advantage to the house.
E.g., if one has a $10M portfolio divided into SPY (paying 1.4% div) and a fixed income ETF (paying 5.6% div) for an average of 3.5% div yield or an annual $350K in dividends. A 0.5% bad pricing would result in an annual loss of $1.75K. If I had only two ETFs, I can receive them in cash (easy to put them on calendar) and reinvest myself but that is not the case and I do not want to do this job myself, rather looking for the best brokerage for this activity and transfer the shares to that brokerage.
Currently, I hardly have any ETFs at Fidelity. A lot of them are at Schwab and some are at Vanguard (taxable account). Just looking at a sample of QQQ div reinvestment cost per share,
Vanguard Schwab 7/31/24 $440 469.49 (I do not see a 440 price until Aug 5) 4/30/24 464 431.54 1/16/24 435 403.22 (1/02/24) 10/31/23 360 352.21 (11/1/23) 7/31/23 406 381.63
Vanguard prices are completely off. It seems Vanguard buys them many days after the dividend pay date, though posts them as of date. I have been holding off on transferring the Vanguard holdings to Fidelity or Schwab for fear of the cost basis getting screwed up during the transfer but I think I have to pull the trigger. So, I am trying to figure out whether Schwab or Fidelity a better destination for dividend reinvestment.
I like @msf’s approach the best. Taking the dividend as cash and reinvest later will get your desired pricing.
One thing I notice that Vanguard’s stock pricing is lagging the real time when you trade throughout the day. Fidelity is much better. Using a separate App if you are an active trader.
I may have misread your question (or your intent). I focused on intra-day price because it always bothered me that sites like M*, stockcharts, etc. provide total return figures that depend on assumed reinvestment prices for ETFs and stocks.
You're looking at a broader picture - not just the price on the day of trade, but which day the trade takes place. Fidelity may be a bit unusual in gradually buying shares starting one day before the pay date. The quote below (from a Fidelity moderator) says purchases start two days before pay date, but that was based on T+2.
For the Fidelity Plan, Fidelity will identify all owners of the security. Then, Fidelity Capital Market Services (FCMS) goes to the market for domestic securities to purchase securities for reinvestment two days before the payable date. Fidelity purchases as many shares as possible on a best-efforts basis, determines the average share prices, and then reallocates those shares proportionately to our clients. The reinvestment price is the average price of all shares purchased, which is determined by the market.
Lots of posts but nothing authoritative I can find about Schwab's practice. FWIW, the posts typically complain (speculate) that Schwab reinvests divs a day after the pay date.
Comments
I don't know Fidelity's process for reinvesting divs (ETFs or stocks). But generally they execute automated trades around 10AM.
https://mutualfundobserver.com/discuss/discussion/comment/180583/#Comment_180583
If you don't think you're getting the price you want, you could always take the div in cash and place a limit order yourself. At least you could at Fidelity. Schwab doesn't offer "slices" of any securities except S&P 500 companies, and even then it doesn't accept limit offers.
https://www.bankrate.com/investing/schwab-slices-vs-fidelity-stocks-by-the-slice/
I am not worried about cash being deposited into the account instead of fractional shares. I am more focused on which brokerage reinvests div on ETFs at the most advantageous way or at least in a neutral way, without giving an advantage to the house.
E.g., if one has a $10M portfolio divided into SPY (paying 1.4% div) and a fixed income ETF (paying 5.6% div) for an average of 3.5% div yield or an annual $350K in dividends. A 0.5% bad pricing would result in an annual loss of $1.75K. If I had only two ETFs, I can receive them in cash (easy to put them on calendar) and reinvest myself but that is not the case and I do not want to do this job myself, rather looking for the best brokerage for this activity and transfer the shares to that brokerage.
Currently, I hardly have any ETFs at Fidelity. A lot of them are at Schwab and some are at Vanguard (taxable account). Just looking at a sample of QQQ div reinvestment cost per share,
Vanguard Schwab
7/31/24 $440 469.49 (I do not see a 440 price until Aug 5)
4/30/24 464 431.54
1/16/24 435 403.22 (1/02/24)
10/31/23 360 352.21 (11/1/23)
7/31/23 406 381.63
Vanguard prices are completely off. It seems Vanguard buys them many days after the dividend pay date, though posts them as of date. I have been holding off on transferring the Vanguard holdings to Fidelity or Schwab for fear of the cost basis getting screwed up during the transfer but I think I have to pull the trigger. So, I am trying to figure out whether Schwab or Fidelity a better destination for dividend reinvestment.
One thing I notice that Vanguard’s stock pricing is lagging the real time when you trade throughout the day. Fidelity is much better. Using a separate App if you are an active trader.
You're looking at a broader picture - not just the price on the day of trade, but which day the trade takes place. Fidelity may be a bit unusual in gradually buying shares starting one day before the pay date. The quote below (from a Fidelity moderator) says purchases start two days before pay date, but that was based on T+2. https://www.reddit.com/r/fidelityinvestments/comments/13y8iti/just_recently_noticed_that_on_dividend_pay_dates/
One hopes this is advantageous as the long term trend of the market is upward. However, since daily movements are nearly a coin flip, the advantage is not as clear as one might expect.
https://www.financialsamurai.com/average-daily-percent-move-of-the-stock-market/
Lots of posts but nothing authoritative I can find about Schwab's practice. FWIW, the posts typically complain (speculate) that Schwab reinvests divs a day after the pay date.
Precisely what I have learned to do. I'm a Schwab customer.