To adjust the cost, you simply divide your initial outlay by the increased number of shares. For example: if you bought 100 shares at $1 each (initial outlay of $100), and were issued 5 shares in the DRP, your cost basis per share is $100 divided by 105 = $0.9524. That's how I do it, anyway.
Hi all,
pretty nooby question so sorry just want to get some opinions.
Whats everyones opinion on using dividend reinvest programs is it better to have it paid in your account and then wait for prices to drop then reinvest or better to avoid broker fees and have it reinvested also do prices jump up when dividends are paid out?
I get all my dividends paid in cash into my account. The reason for this is because that from the time the share goes ex dividend the share price might go up to a price where I might think it's not worth reinvestment and it is beyond your control. In other words I might have to pay too much for that particular stock. I prefer to pay my $20 or $30 brokerage and buy what I like when I like in the parcel size that I want. Having dozens of separate small buy parcels once you have sold the stock can give you a bit a capital gains headache too, just my opinion.Whats everyones opinion on using dividend reinvest programs is it better to have it paid in your account and then wait for prices to drop then reinvest or better to avoid broker fees and have it reinvested also do prices jump up when dividends are paid out?
my approach exactly.I get all my dividends paid in cash into my account. The reason for this is because that from the time the share goes ex dividend the share price might go up to a price where I might think it's not worth reinvestment and it is beyond your control. In other words I might have to pay too much for that particular stock. I prefer to pay my $20 or $30 brokerage and buy what I like when I like in the parcel size that I want. Having dozens of separate small buy parcels once you have sold the stock can give you a bit a capital gains headache too, just my opinion.
Hey guys, speaking of DRP's:
I recognise that from a shareholders perspective, whether investors choose to take a DRP or the cash payment will, in theory, lead to the same reduction in share value.
Yet how does a DRP influence a company's balance sheet?
Remembering A = L + OE
My understanding is that a cash dividend is recorded by reducing retained earnings (OE) and reducing cash (A)
But with a DRP we reduce retained earnings (OE) and increase 'paid in capital' (OE) leading to a no change in OE or the overall balance sheet.
If the above is correct does this not influence ratios such as EPS and the like?
Put another way: if the same 2 companies performed exactly the same year on year but one company allowed a DRP and the other did not, the one which did not would have a far greater EPS?
Depends on the return the company with the DRP gets with that extra retained capital.
The capital isn't retained tho is it? It is either paid out to the investor or spent purchasing the shares and then transferred to the shareholder? So either way cash is reduced..
That is my understanding of how DRPs work..
Most company's running DRP's issue new shares...in my limited experience i only know of 1 company buying shares on market for its DRP.
Interesting, I was thinking about this issue a few days ago. If as part of a DRP, the company issues new shares, doesn't that dilute the already existing shares?
Interesting, I was thinking about this issue a few days ago. If as part of a DRP, the company issues new shares, doesn't that dilute the already existing shares?
Depends on the return the company with the DRP gets with that extra retained capital.
Dilution depends on the price at which the new shares are issued. Your typical DRP is only 2-3% discount to some VWAP over some period. Each dividend is at most 3-4% of the market cap, and with 30-40% participation rate, the dilution (if any) would be minimal.
A rough example.
Before DRP... shares on issue = 100m, share price = $1, earnings = $10m, EPS = 10c. ROE = 10% (say). Dividend @ 5c. DRP price = $0.94. Participation rate = 40%.
Dividends paid out = $5m.
DRP funds back into the company = $2m.
New shares issued at 94c = 2.1277m.
After DRP
Total shares on issue = 102.1277m.
Additional earning from DRP funds = $0.2m.
Total earning = $10.2m.
EPS = 9.987cps.
Dilution = -0.13%.
This may seem like a stupid question, I've never really given much thought to DRPs. There are no stupid questions, just stupid people and all that...
But what happens to the franking credit in the DRP? Is that calculated in the DRP purchase, or is it just calculated at tax time?
Cheers
This may seem like a stupid question, I've never really given much thought to DRPs. There are no stupid questions, just stupid people and all that...
But what happens to the franking credit in the DRP? Is that calculated in the DRP purchase, or is it just calculated at tax time?
Cheers
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