Re-investing dividend payments

[viciam]

Hi there,

If I have 100 shares in a company that pays dividends and the date comes when they payout dividends and I choose to re-invest those dividends instead of having them paid out to me, would they be re-invested at the current stock price?

Thanks

 

[danbradster]

Hi there,

If I have 100 shares in a company that pays dividends and the date comes when they payout dividends and I choose to re-invest those dividends instead of having them paid out to me, would they be re-invested at the current stock price?

Thanks

KCN's recent dividend was reinvested at the weighted average price of the 5 trading days before the record date, I believe.

The average of the ex-dividend date plus the 2 days before and 2 days after it, or something like that.

You would have to enable re-investment for your holding before the ex-dividend date or record date (I'm not sure which). Enabling it close to the payment date won't work.

 

[viciam]

KCN's recent dividend was reinvested at the weighted average price of the 5 trading days before the record date, I believe.

The average of the ex-dividend date plus the 2 days before and 2 days after it, or something like that.

You would have to enable re-investment for your holding before the ex-dividend date or record date (I'm not sure which). Enabling it close to the payment date won't work.

Sorry in simple terms please?

 

[burglar]

Sorry in simple terms please?

Volume Weighted Average Price (VWAP)
What Does Volume Weighted Average Price (VWAP) Mean?

A trading benchmark that is used most often in pension plans. VWAP is calculated by adding up the total dollar value traded for all transactions (share price multiplied by number of shares traded) and then dividing by the total quantity of shares traded for the day (see the accompanying formula).


Link:
http://financial-dictionary.thefreedictionary.com/Volume+Weighted+Average+Price

 

[burglar]

Sorry in simple terms please?

His example is what an Australian company "KCN" did!

Your company does it the way they want to.

You are allowed to ask your sharebroker,
the agency listing your shares or even the company whose shares you hold.

There must be (email) contacts on the documents you have received.

 

[danbradster]

KCN's recent dividend was reinvested at the weighted average price of the 5 trading days before the record date, I believe.

The average of the ex-dividend date plus the 2 days before and 2 days after it, or something like that.

You would have to enable re-investment for your holding before the ex-dividend date or record date (I'm not sure which). Enabling it close to the payment date won't work.

In simpler terms, as long as you enable dividend-reinvestment well before the dividend payment date you will get reinvestment rather than cash. It won't be reinvested at the share price on the dividend payment date, it will be reinvested close to the share price on the ex-dividend date.

As long as you read every announcement by your company, they should let you know the dividend re-investment price after the ex-date but before the payment date.

 

[Izabarack]

.......would they be re-invested at the current stock price?

No. As others have replied, the cost price of the new shares is determined by a weighted average formula using stock prices close to the time stocks went exdividend.

Iza

 

[viciam]

Hmm I see,

So the rules vary by company to company?

 

[stewiejp]

Each company is different and they should set out the timing of the price in their DRP brochure. I thought it was generally around the record date, not the ex div date but I have been wrong before (once). it is also averaged out over a number of days average pricing.

I just had a look at what prices I received my DRP shares and they were all priced at around the record date - a week or so after the stock went ex dividend, and dipped. Therefore I received my DRP shares at the lower price (shares generally go down after doing ex dividend), and obviosly also saved on brokerage.
Hope this helps.

 

[pixel]

The companies that offer a DRP (Dividend Re-investment Plan) will usually try and make participation a little more "palatable" to shareholders. A discount of 5% to the prevailing shareprice is often par for the course. After all, it benefits the company: They save cash and dilute the share base by just that fraction.
To the shareholder, any franking credits still apply; they also have to declare the dividend as income in their tax return, regardless whether it had been in cash or shares.

Whether I participate in such DRPs or not depends on a number of factors:
The discount to prevailing trading conditions is only a small consideration.
The main concern is where the stock is currently trading: Would I buy any number of shares in this particular company at this particular price? If it's in a downtrend, my answer would most likely be "No, wait for an opportunity to buy at a lower price." The same applies if the stock is overbought at the time of the DRP event.

To me, participation in a DRP makes only sense when

• the share is in a steady uptrend,
• I like to increase my holding and
• I consider it unlikely to get additional shares at the DRP price.

 

[setandforget]

I used to do dividend re-investment but stopped because what it meant was twice a year I bought some weird tiny number of shares - ie it means I have a whole lot of small parcels of shares with different purchase dates and prices. which makes working out profit / loss when I sell - a PITA since it doesn't all automatically put itself into a computer system and work itself out for me.

The main advantage to using it is - no brokerage for buying this way - which can be significant.

The company should tell you up front how it works out the purchase price. Companies can use whatever method they like. Some have a discount on the market price at their chosen "purchase" date as well as no brokerage or stamp duty - which takes some of the short term risk out of it.

 

[viciam]

I hear compounding is a beautiful thing?