Hidden Vanguard Dividend Reinvestment Fee?

By chance I noticed that my last dividend reinvestment for my Wachovia investment in my Vanguard Brokerage account didn't seem right. The dividend reinvestment was made at $29.69 per share, way above the trading range ($24.00-$26.40) reported by Yahoo!Finance for the day the dividend payment was made.

I sent an email to Vanguard Customer Service to investigate:

Hi I wanted to ask about a recent dividend reinvestment transaction on my account. On 3/17/2008 I had a Wachovia dividend reinvested. The dividend was for $128 and was reinvested into 4.3112 shares @ $29.69. I was surprised that the share price on my reinvestment was so high as it was much higher than the trading range for the day ($23.77-$26.40) and at another brokerage account I also reinvested my Wachovia dividend on the same day in question and the dividend was invested @ $26.54. Could you help me understand why there is such a discrepancy?

I would also like to understand if all dividend re-investments will be at inflated prices going forward?

Here is the thorough response I received back from Vanguard:

Thank you for your recent e-mail regarding Vanguard Brokerage Services®. I
am responding on behalf of your Flagship representative.

Please know that shares reinvested at Vanguard are not purchased on the
dividend's payable date. Unlike many firms, Pershing, LLC, our clearing
agent, does not maintain an inventory of additional stocks to credit to
their clients' accounts for dividend reinvestment. They instead purchase
shares on the open market. For securities with more than four days between
the record date and the payable date, Pershing will attempt to purchase
these additional shares at the market's open on the third business day
prior to the payable date. The record date for the March 17, 2008 Wachovia
Corp. (WB) dividend was February 27, so this dividend payment falls under
this policy.

The third business day prior to the payable date of March 17 was March 12.
On this date, WB opened trading at $29.63 and went as high as $31.20. You
received a dividend reinvestment price close to the opening at $29.69. This
was a valid reinvestment price based on our procedures for reinvesting
dividends. For more information on our dividend reinvestment policies,
please visit this link:

Vanguard Dividend reinvesment

[2million], I trust this information is helpful. I have forwarded a copy of
this e-mail to your representative. If you have any further questions,
please contact your Flagship Representative at 1-800-345-1344. If your
representative is unavailable at the time of your call, any one of our team
of trained representatives will be happy to assist you.

I have to say I am very impressed by Vanguard's thorough response. Check one up on the Vanguard customer service.

But does the dividend reinvestment policy make sense?
I don't know. Just as it worked against me in this situation, it could work for me in future situations as the market is rising so I don't think there's a big difference on the timing front.

What concerns me more about reinvesting dividends (anywhere, not just Vanguard) is the lack of transparency of fees or costs compared to the market. It would be nice to be able to understand what day the money was invested so I can compare it to the trading range of the stock on that day. It gives me piece of mind knowing that nothing is out of whack and I am not paying a 10%+ premium for the shares.

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