Reinvesting dividends

[Lawso]

I know the following will be of no interest to the traders on this site, but my experience with Property for Industry may interest those who have a medium/long term time frame. It illustrates the benefit of reinvesting dividends, which will only accelerate as compounding takes effect.

I first bought into PFI in early 1999 with a modest purchase of 10,000 @ 82cps. Later that year I opted into the DRP. I have bought and sold only small quantities over the years. I have spent $32,039 but with allotments in lieu I now hold 49,914 shares with an average buy price of 64.2cps. At the current (depressed) price of 116 - this time last year they were around 150 - my stake is worth $57,900, a gain of 80.7%.

E&OE!

[POSSUM THE CAT]

Not a good idea in a falling market as usually you can buy cheaper than the DRP price even if issued at a discount

[shasta]

But the only way to look at it is what benefit has there been over and above the cash dividend? The thing that concerns me about these schemes is the opportunity cost of not having the cash which may be better used if there is a juicy offering dangling before your eyes.

Lawso's point was that by reinvesting the dividends from a listed Property Trust/Company, the compound effect of dividends built up a decent holding without having to trade or add to it.

Property Trusts/Companies usually pay out a high %age of profits/cashflows hence the better than average yields they attract.

Most acquistions are debt funded (no capital required from shareholders) & financed from existing cashflows, surplus cashflows are paid out...

Seems there has been some capital gains as well, though i do get your point about opportunity cost.

I did a similar thing with KIP & CHP (?) a few years back.

The Property Trusts/Companies that pay a 1/4ly distribution do offer the same compound effect. :)

It's not for everyone, but passive investors not requiring the cash/income can build up a nice position over time.

[Lawso]

It's not for everyone, but passive investors not requiring the cash/income can build up a nice position over time.
Exactly my point. Thanks, Shasta

[AMR]

where's the benefit over simply reinvesting the cash other than the possibility of a small discount, which in itself can't be guaranteed?

A very true point. I seem to remember FTX shares trading at 49c or so, and the DRP gave the shareholders shares at 60 odd cents.

Worthwhile if the share is in an uptrend though.

[shasta]

But is it the best way? Using the cash to reinvest in other real estate companies, or in a different sector altogether may be better. Otherwise you have committed your money when there could very well be better options. And that's my point. Whether a long term investor or a flick-over merchant why give up your options? So my original question stands - where's the benefit over simply reinvesting the cash other than the possibility of a small discount, which in itself can't be guaranteed?

This isn't a debate on whether it's the "best" use of funds, but merely a simple example of how one can build up a position over time passively.

Perhaps there isn't a benefit, other than it requires little effort!

I'm sure Lawso had other investments at the time, & this was a portion that wasn't required in the short term.

[Lawso]

This isn't a debate on whether it's the "best" use of funds, but merely a simple example of how one can build up a position over time passively.

Perhaps there isn't a benefit, other than it requires little effort!

I'm sure Lawso had other investments at the time, & this was a portion that wasn't required in the short term.
You're onto it again, Shasta. I don't claim that DRPing is the best way or the only way. I'm saying it is one way and of course I have other share investments.
Benefits? Not only "no effort". How about no brokerage and useful discount to market price? And huge advantages over direct property investment, including no effort, not hassles with tenants, no tax complications, no mortgage and very little risk.

[Pdeaks]

Sorry guys I have been searching the forums for a thread with companies that have DRP, this thread is the closest. Can anyone list the companies that have them or point me in the right direction? Cheers

[POSSUM THE CAT]

Pdeaks CEN ANZ

[ENP]

80% odd return over those 11 years is less than 6% annual return.

Would have been better off buying term deposits or a government bond...

[Stranger_Danger]

I agree 100% that the *concept* of reinvesting dividends is a good one and part of the "secret" of compounding.

However, I'm not such a big fan of dividend reinvestment plans, although I utilise them once in a while.

The main problem I have is that businesses that throw off a lot of cash as dividends tend to be mature businesses.

Whilst useful in a portfolio, a DRP often leads to being overweight in mature cash generators. Even worse, the passive nature of DRP's forces one to take their eye off the ball. Mature businesses have a habit of slowly getting loaded with debt (secured against strong cashflows, taken on to maintain high dividends) and eventually, the business stagnates and eventually hits the skids.

The passive DRP user takes a while to notice, because their time horizon and continued reinvestment means they're still in the money for a long time after the stagnation starts.

Bottom line?

Reinvesting dividends? Essential!

Passively putting money back to whence it came? Not so much.

Personally, I try to use dividend payments as a catalyst to ask "where is the best place for this money to be?" which leads to both evaluating new opportunities, and, more importantly, re-evaluating current investments.

The "appeal" of DRP's (much like mortgages, KiwiSaver, and wives for *some* men) is they avoid the asking of questions, goal based decision making and are a type of forced action. A way to do something but without really doing something.

Stuff that. The asking of questions and action by choice based on logic is what its all about.

[Snoopy]

80% odd return over those 11 years is less than 6% annual return.

Would have been better off buying term deposits or a government bond...


After tax I think government bonds would have yielded around 4.5% at best over the 11 years in question. Lawso's return is I think after tax

I think Lawso would still be better offf doing what he did, reinvesting those dividends in the PFI DRP. An annual 1.5% premium over the bond rate I would say is quite an acceptable return for a listed property investment.

SNOOPY