Q. I have had DRIP stocks for over 15 years and I am trying to find out if there is an easy way to determine the cost basis of each stock. I know there are computer programs, but I don’t have a computer. I am bombarded with terms such as dividend reinvestment, transaction amount, net dividend payout, transaction shares, dividend rate, etc. Are all of these terms necessary?
A. Get ready to do some sleuthing and some math. DRIPs are dividend-reinvestment plans run by corporations for investors who already own stock in the company.
First, contact the company that manages the DRIP program. It can probably provide you with the data for a fee, said Robert Bacino of Insight Financial Services in Flemington.
To do it yourself, you’ll need the use of a spreadsheet program or manual worksheet to keep track of the data, he said.
A stock share is a capital asset and all the costs used to purchase that asset, generally speaking, comprise its cost basis, Bacino said. Corporate actions can increase or decrease the number of shares without cost (such as dividends, splits, spinoffs, etc.), which creates an adjusted cost basis for that share.
What is relevant in determining the cost basis of DRIPs is the same as in buying shares of stock outright: what was paid for the shares and how did corporate actions, if any, affect the cost basis.
"For stocks that pay quarterly dividends in a DRIP program, you would have acquired additional shares each any every time a dividend was paid," he said. "The total amount of the net quarterly dividend would have been used to purchase additional shares."
At this point, you would need to know the dividend payout each quarter and the number of shares purchased with the dividend. You’d keep a running total of shares acquired and cost basis.
"The net dividend payout is the cost basis for additional shares acquired with that dividend," he said.
Barring the access to your personal DRIP records, multiplication of current shares owned by the net dividend paid should yield the cost basis of shares acquired, Bacino said. Fifteen years of stock purchases via a quarterly DRIP would create approximately 60 separate lots of stock, each with its own cost basis.
"[It is a matter of] keeping track of a running total of shares acquired on a quarter by quarter basis and knowing the net amount of the dividends paid per quarter so that you can determine, in total, the cost basis of each lot of shares," he said.
Your tax returns could also help, said Douglas Duerr, a certified financial planner and certified public accountant with U.S. Wealth Management in Montville.
"The amount you received as a dividend for the share repurchase would have been reported as dividends received," Duerr said. "If you know the number of shares you received each year you would most likely come fairly close if you used an average share price of the stock for that year"
But, he said, that could be a far off calculation if the security had large price fluctuations during the year.
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