Dividend Reinvestment Plans

I am interested if anyone knows a good site to go to which has listed all the companies that have dividend reinvestment plans ?
:confused:

yes good question, i think dividend reinvestment plans are the way to go if you only have a small number shares. im pretty sure most companies have that option available, although im not sure.

careful, they bite:

Shareholders who elect to reinvest dividends under the DRP are taxed in Australia as though a cash dividend is paid to them and the dividend is then applied to acquire shares. Accordingly, participating shareholders who are individuals will be required to include the amount of the cash dividend which is applied to pay up the shares issued and any associated franking credits in their assessable income. The franking credits offset tax payable on the income of such shareholders.

For Capital Gains Tax purposes, shares issued under the DRP will have a cost base equal to the amount of the cash dividend entitlement which is reinvested. Shareholders may be subject to tax on disposal of the shares depending on the sale proceeds received and the cost base of the shares.

http://www.egoli.com.au/clientservices/documents/generaldocuments/DRP_PLANS_REPORT.pdf

One advantage of DRP is that you are accumulating shares without extra brokerage. Some comanies also offer a share discount. Is this discount taxable?

MIT

sometimes get 2.5% discount (cost base discounted)

example 1:

- $10,000 shares @ $10 (1000)
- divs $700
- $300 franking credits
- shareholder 30% tax bracket

reinvestment plan takes $700, buys 71 shares @ $9.75 (discounted 2.5%)
shareholder tax liability $1000 ($300) less $300 franking credits = $0 tax to pay. There is a capital gain of 25c/share which will be realised at some stage, and remember the cost base is CASH divs not gross, so you get double taxed....after 5 years you have 1414 shares with $128 in discount profits. Return is 42.7%


a better investment is in self funded instalment warrants.

the divs pay off the balance of the loan, you dont receive the divs but you do receive the franking credits.

example 2:

- $10,000 instalment warrants @ $5 (2000)
- divs $1400 (kept to pay the loan)
- $600 franking credits
- shareholder 30% tax bracket

shareholder tax liability $600 ($180) less $600 franking credits = $420 tax refund. Lets say the shareholder uses this $420 to buy more instalments:

420 / 5 = 84

after 5 years you have 2369 instalments (which have risen in value to $8 as the loan was paid back) and $2762 in tax refunds (comparing to discount profits). Also there are other tax breaks for prepayment of interest which I have ignored. Return is 89.6%