sharetrader
Results 1 to 4 of 4
  1. #1
    Member
    Join Date
    Dec 2015
    Location
    Wellington
    Posts
    135

    Default Dividend Reinvestment

    Hi,

    I'd appreciate some assistance with understanding how dividend reinvestment affects total cost.

    Example
    If I purchased 1000 ABC shares at $10.00 each with a brokerage fee of $100 - my total cost would be $10,100.

    Let's say I received a dividend of 20c per share (ignore tax to keep it simple) and received a payment of $200.00

    Assume the ABC share price is still $10.00 per share and I purchased 20 more ABC shares with the $200 from my dividend, thereby increasing my ABC holding to 1020. Let's say the brokerage fee was $20.00.

    Does this mean that my new total cost for ABC is calculated as $10,100 (Initial Purchase) - $200 (Div) + $20 (Brokerage) = $9,920 and therefore my average share price for ABC is $9,920/1020 = $9.725?

    Many thanks
    Mickey

  2. #2
    Reincarnated Panthera Snow Leopard's Avatar
    Join Date
    Jul 2004
    Location
    Private Universe
    Posts
    5,853

    Thumbs down Those brokerage fees are a little high

    There is taking the cash you receive for your dividends and using that cash to buy further shares in the same company through on market purchases - this is what you are describing.

    There is also being paid your dividend in new shares in the company - this is generally known as a dividend reinvestment plan.

    Anyway on the assumption that you knew that difference I would answer your question by saying No - not usually.

    The cost of your 1020 shares is $10320 ($10100 + $220).

    Best Wishes
    Paper Tiger
    om mani peme hum

  3. #3
    Member
    Join Date
    Dec 2015
    Location
    Wellington
    Posts
    135

    Default

    Thanks PT - I thought that'd be the case. Yeah, I'd be spitting tacks if the brokerage rates I used in my example weren't fictitious :-)

    So does that mean then for the other scenario - DRP - that I would have to adjust my spreadsheet for a particular share to increase the total cost by the value that the reinvested shares were struck at?

  4. #4
    Reincarnated Panthera Snow Leopard's Avatar
    Join Date
    Jul 2004
    Location
    Private Universe
    Posts
    5,853

    Thumbs up Confidently answers despite lack of practical experience

    I have to admit that despite my many years of share ownership I have never yet taken part in a DRIP, but as luck would have it, I have recently signed up for the DRIP in Heartland.

    But come the time, Yes, I will record, as the price paid for these new shares, the specified strike price.1 2

    Come the 5th April - I will be better informed.

    Best Wishes
    Paper Tiger

    1 Though I do wonder about how to deal with the discrepancy where your dividend entitles you to say 99.467 shares and you only get 99.

    2 Sorry - A little heavy on the commas there.
    Last edited by Snow Leopard; 11-03-2016 at 01:47 PM. Reason: try to correct some funny formating
    om mani peme hum

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •