Reinvesting share dividends
Discussion
Sorry if this is a stupid question. I have inhereted a modest number of shares in 3 blue chip companies.
I have no need for the dividends to be paid to me in cash and would prefer them to be reinvested in more of the companies shares.
Is this something that companies are often asked to do and if so is there a simple way of doing this. None of the paperwork I have been sent gives this as an option.
Thanks in advance.
I have no need for the dividends to be paid to me in cash and would prefer them to be reinvested in more of the companies shares.
Is this something that companies are often asked to do and if so is there a simple way of doing this. None of the paperwork I have been sent gives this as an option.
Thanks in advance.
I do this with some of mine and am enjoying watching them grow as opposed to blowing odd dividends here and there.
Now called a DRIP
Useful info here...
http://www.shareview.co.uk/products/Pages/Dividend...
Now called a DRIP
Useful info here...
http://www.shareview.co.uk/products/Pages/Dividend...
I also do this and enjoy watching the number of share grow.
I believe that there are two ways of doing this, namely by taking script dividends or using DRIP (dividend reinvestment plan), as mentioned above.
Script is where the company issues new shares to the value of the dividend (subject to an adjustment for tax)to shareholders who have elected to join the scheme, instead of paying the dividend in cash.
DRIP is where the company pays the dividend in cash and the company's registrars then use that money to buy new shares in the company on the open market for the shareholder.
With script, the overall number of shares in circulation obviously increases every time new shares are issured. However, since the company keeps the dividend money, in theory at least, the company's capital should also increase accordingly and the share should not be devalued. The hope, of course, is that the company will put that extra money to good use thereby driving the business forward and increasing the share price.
With DRIP the overall number of shares stays the same and the dividend money is paid out of the business and reinvested in the company's shares on the open market.
As far as I am aware, not all companies offer script dividend but I suspect most registrars, certainly of blue chip companies, will offer DRIP.
I personally prefer script dividends where they are offered and do not use DRIP. I do not think there is anything wrong with DRIP in principle, it is just if the money is going to be paid out in any event, I prefer to decide whether to invest it in the same company or elsewhere and, if so when, myself. I may be wrong but with DRIP I do not think you have any control of the price at which the new shares are purchased, it will just be at or close to market price on the day in question. The registrar may get a slightly better than market price because they will buy shares on behalf of all shareholders in large batches but it will not be much better.
With script, cerainly with the my biggest holding, the script price (ie the deemed cost of the newly issued shares) is set as an average of the market price over the 5 days after the shares go ex dividend. Thereafter I am notified of the script price and the date by which I can elect to take the cash alternative, if I prefer. Sometimes the script price is above market price on election day and sometimes it is below. Personally I do not pay much attemtion to that and invariably take the scriot dividend since it is a good solid company and this is along term investment. Over the years that approach has worked well. However, script dividend does offer the option of taking the most advantageous approach each time, if that is what is required.
Hope this helps.
I believe that there are two ways of doing this, namely by taking script dividends or using DRIP (dividend reinvestment plan), as mentioned above.
Script is where the company issues new shares to the value of the dividend (subject to an adjustment for tax)to shareholders who have elected to join the scheme, instead of paying the dividend in cash.
DRIP is where the company pays the dividend in cash and the company's registrars then use that money to buy new shares in the company on the open market for the shareholder.
With script, the overall number of shares in circulation obviously increases every time new shares are issured. However, since the company keeps the dividend money, in theory at least, the company's capital should also increase accordingly and the share should not be devalued. The hope, of course, is that the company will put that extra money to good use thereby driving the business forward and increasing the share price.
With DRIP the overall number of shares stays the same and the dividend money is paid out of the business and reinvested in the company's shares on the open market.
As far as I am aware, not all companies offer script dividend but I suspect most registrars, certainly of blue chip companies, will offer DRIP.
I personally prefer script dividends where they are offered and do not use DRIP. I do not think there is anything wrong with DRIP in principle, it is just if the money is going to be paid out in any event, I prefer to decide whether to invest it in the same company or elsewhere and, if so when, myself. I may be wrong but with DRIP I do not think you have any control of the price at which the new shares are purchased, it will just be at or close to market price on the day in question. The registrar may get a slightly better than market price because they will buy shares on behalf of all shareholders in large batches but it will not be much better.
With script, cerainly with the my biggest holding, the script price (ie the deemed cost of the newly issued shares) is set as an average of the market price over the 5 days after the shares go ex dividend. Thereafter I am notified of the script price and the date by which I can elect to take the cash alternative, if I prefer. Sometimes the script price is above market price on election day and sometimes it is below. Personally I do not pay much attemtion to that and invariably take the scriot dividend since it is a good solid company and this is along term investment. Over the years that approach has worked well. However, script dividend does offer the option of taking the most advantageous approach each time, if that is what is required.
Hope this helps.
Edited by costsmonkey on Wednesday 30th November 10:47
Ah, you are right - sorry.
Probably explains why I could not find anything on scrip dividends on the Equiniti Shareview site you helpfully linked to - should have been a clue!
Now you have pointed out the error, I have located an explanation of the difference between scrip dividend and DRIP on the Equiniti Shareview website and since it probably explains the position better than I did, link below
https://www.shareview.co.uk/HelpCentre/Pages/faq16...
Hope I got everything else right!
Probably explains why I could not find anything on scrip dividends on the Equiniti Shareview site you helpfully linked to - should have been a clue!
Now you have pointed out the error, I have located an explanation of the difference between scrip dividend and DRIP on the Equiniti Shareview website and since it probably explains the position better than I did, link below
https://www.shareview.co.uk/HelpCentre/Pages/faq16...
Hope I got everything else right!
Reinvestment schemes are fine in some respects - I always used to subscribe to them, but, collating things for my tax return (sorry accountant I know you get a pre-Christmas rush) I see that they can be a complete PIA. Shell have switched to issuing "A" shares for reinvestment of dividends from their "B" shares. The result, if you have a relatively small holding, and with the income sliced into 4 divis a year, is; with A shares costing about £22 the last time I looked, you often have a divi which buys several shares but leaves a significant chunk of a whole share in cash until the next divi. Furthermore, the divis on the tiny number of A shares are proportionately small so if you reinvest them.... added to which they are in USD and I can't remember if they're subject to Dutch witholding tax. To pay the accountant to sort it out is more expensive than it's worth.
The attraction of nominee holdings or accumulation funds sheltered in an ISA grows...
ETA - do you want 3 holdings? They may have been 3 blue chip companies selected by whoever you inherited from for year-on-year increasing dividends and a solid business model - top holdings in that category in the past included Lloyds, M&S, and BP!
The attraction of nominee holdings or accumulation funds sheltered in an ISA grows...
ETA - do you want 3 holdings? They may have been 3 blue chip companies selected by whoever you inherited from for year-on-year increasing dividends and a solid business model - top holdings in that category in the past included Lloyds, M&S, and BP!
Edited by nomisesor on Wednesday 30th November 20:23
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