How To Get The Most Out Of Your Dividends

[piggybank]

Cash goes in, cash comes out, right? Businesses that generate free cash flow, or those that eventually will, are what every investor should seek. The problem is that not all shareholders need the cash coming out, usually as dividends. That is where dividend reinvestment plans (DRPs) come in. The idea is that, instead of a dividend - cash coming out - the company issues you additional shares to an equivalent value. The question is whether they are worth it.

There are a few considerations. The first is whether the stock itself is underpriced, one of the golden rules of investing. If so, it may make sense to participate, especially as DRPs often offer stock at a small discount to the traded price and avoid broker commissions. To decide, keep an eye on your DRPs at dividend time and make judgments about the value on offer.

If you want to read more then you can do so by double clicking on the link here:- http://www.smh.com.au/money/investing/how-to-get-the-most-out-of-your-dividends-20140318-34ymm.html

 

[Judd]

I suppose the article may be informative for those who may not be aware of the ins and outs of DRPs - I haven't read it.

I recently participated in a DRP with MIR as the discount of 10% was too hard for me to resist and I didn't need the cash.

There are also a couple of company's which provide for a percentage participation in DRP's rather than the requirement to either nominate all the shares or a specific number of shares.

 

[liezelB]

Thanks for the post. I thought, its with your savings and a good credit to have higher dividends.

 

[Judd]

Thanks for the post. I thought, its with your savings and a good credit to have higher dividends.

Re the underlined bit. Only if they are supported by increased earnings and not merely increased payout ratios.

And watch out for those companies which purport to make a placement under the guise of a DRP shortfall (there no such thing; every shareholder who participates either fully or in part in a DRP gets 100% of their request.) It is simply another name for a placement and probably has a diluting effect.