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  1. #1
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    Default Dividend Reinvestment Plans

    What opinions do others have of Dividend Reinvestment Plans. Do many NZX companies offer them? I am retiring in 3 years and am looking at options for passive income.
    Last edited by Sgt Pepper; 08-12-2021 at 08:51 PM.

  2. #2
    Guru justakiwi's Avatar
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    I love them. Which is why I hold KFL, MLN and BRM as they all pay quarterly dividends and offer Dividend Reinvestment Plans. Great way for small shareholders like me to add to my holdings without investing any additional capital. OCA also offers DRP.

    The only downside for me, which doesn't happen very often, is that sometimes the strike price for DRP turns out to be less than the market price on the day. In those situations I could technically have bought the same number of shares on market, for a cheaper price. But that doesn't take into account brokerage. Not a big deal for me but could be for someone with a large holding.

    Some people hate DRP but I love it.

    Quote Originally Posted by Sgt Pepper View Post
    What opinions do others have of Dividend Reinvestment Plans. Do many NZX companies offer them? I am retiring in 3 tears and am looking at options for passive income.

  3. #3
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    I'm technically 7 years away from retirement, have a good job, so no need for cash divvies. I'd echo what jak says. Occasionally the timing is not ideal if the strike price is greater than the market price, but the plus side is no commission and usually issued at a small discount to market value.
    You circumstances may differ to mine so make your own decision.

  4. #4
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    Too each their own.

    I for one take one everywhere I can get them with full uptake. No commission makes them efficient (reinvesting smaller dividends will have a disproportionately high & inefficient commission rate). It averages in over various price cycles. It is forced savings. I find there is usually a small discount applied in my DRIPs. And be honest it is unlikely that most of us will have the discipline to reinvest that cash straight back in. Its unemotional so I dont have to fret about where to put it.

    And I then enjoy my cash dividends all the more when they arrive in my account. Sometimes I use them to pay off my credit card, sometimes I invest it in other shares. Less often I buy the same exact share that gave me the dividend, although I know I should do that more.

    The beauty of DRIPs is you dont fret away your cash and one day after a few years wake up surprised to find all the shares you own. And when your circumstances change, turn off the DRP, and collect more coin than you would have before.
    Last edited by Muse; 08-12-2021 at 10:01 PM.

  5. #5
    Member glennj's Avatar
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    Yes each to their own. I'm semi retired and take most dividends in cash but reinvest the majority of it. I do participate in several DRIPs. DRIP elections are changed on how I view the respective companies situations. My philosophy is I like to apply investment money to companies I see as being good value at the current price. Sometimes whilst prepared to hold I do not wish to invest further in a company at the current price so use the cash dividend to invest elsewhere. I realise I could take the DRIP and avoid brokerage and perhaps get a small discount and that does happen at times but those companies in which I don't want larger holdings would then have to be sold down and brokerage and perhaps a lower price copped at that end. DRIPs can be great but the beauty of cash dividends when reinvesting is that they can be applied to where you currently see the best value in the market. Sometimes you can have the best of both worlds and have a company you consider undervalued offering a DRIP with a discount. In such cases it is a no brainer to take the DRIP.

  6. #6
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    ASB Securities holds my shares but I opt in to all DRPs if they are available. If compounding is the eighth wonder of the world as described by Enstein then this is the way to go. If I am not happy to make small reinvestments into the company, I should be questioning my main investment in the company, although I suppose prices can get ahead of themselves.
    As pointed out by Moose, no broker fees and usually at a discount to the listed price around the time the dividend is paid.

    Although reading your question again if you want passive income DRPs aren't going to be giving you any cash for retirement spending, but might be a good way to increase your passive income before retirement, unless we have the mother of all stock market crashes, then it could be 10years to get your capital back, although if you are buying reliable dividend paying companies any falls might not be that bad.

  7. #7
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    Quote Originally Posted by Aaron View Post
    ASB Securities holds my shares but I opt in to all DRPs if they are available. If compounding is the eighth wonder of the world as described by Enstein then this is the way to go. If I am not happy to make small reinvestments into the company, I should be questioning my main investment in the company, although I suppose prices can get ahead of themselves.
    As pointed out by Moose, no broker fees and usually at a discount to the listed price around the time the dividend is paid.

    Although reading your question again if you want passive income DRPs aren't going to be giving you any cash for retirement spending, but might be a good way to increase your passive income before retirement, unless we have the mother of all stock market crashes, then it could be 10years to get your capital back, although if you are buying reliable dividend paying companies any falls might not be that bad.
    What do you mean "ASB Securities holds my shares"?

  8. #8
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    Quote Originally Posted by Sgt Pepper View Post
    What opinions do others have of Dividend Reinvestment Plans. Do many NZX companies offer them? I am retiring in 3 years and am looking at options for passive income.
    I don't know what the figures are, but I would say many - certainly not all - NZX companies offer DRIPs. Looking at my portfolio, 6 out of the 8 companies I am invested in are currently doing a DRIP.

    I say "currently" because remember that sometimes a company will suspend their DRIP.

    I participate in most of the DRIPs; not all because my budgeting is not always iron-clad and occasionally I need the dividend to repay a bank account that I borrowed some money from to buy a share that I was drooling over

    If you have a REALLY small holding in a particular company, I guess the DRIP may not necessarily be the absolute best value, because depending on the company's policy you may find that your dividend is reinvested into X number of shares and there is a small remainder left over which you effectively lose. But as your holdings grow that effect would be diluted.
    Last edited by oldtech; 09-12-2021 at 10:21 AM. Reason: Added more thoughts ...

  9. #9
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    Quote Originally Posted by oldtech View Post
    I don't know what the figures are, but I would say many - certainly not all - NZX companies offer DRIPs. Looking at my portfolio, 6 out of the 8 companies I am invested in are currently doing a DRIP.

    I say "currently" because remember that sometimes a company will suspend their DRIP.

    I participate in most of the DRIPs; not all because my budgeting is not always iron-clad and occasionally I need the dividend to repay a bank account that I borrowed some money from to buy a share that I was drooling over

    If you have a REALLY small holding in a particular company, I guess the DRIP may not necessarily be the absolute best value, because depending on the company's policy you may find that your dividend is reinvested into X number of shares and there is a small remainder left over which you effectively lose. But as your holdings grow that effect would be diluted.
    I don't have any divs on DRIP at present but when I did, any remainder carried forward to the next DRIP and used there.

  10. #10
    Guru justakiwi's Avatar
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    The Fisher trio carry the remainder over and it is applied to the next DRP allocation, which is awesome.

    Quote Originally Posted by oldtech View Post
    number of shares and there is a small remainder left over which you effectively lose. But as your holdings grow that effect would be diluted.

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