What is a dividend reinvestment plan?
Some companies offer dividend reinvestment plans (DRP). These enable investors to automatically reinvest dividend payments into new shares in the company. DRPs generally allow investors to reinvest either a portion or all of a dividend payment into new shares. As the company is issuing the new shares there won’t be any brokerage or transactions costs involved. Some companies may also issue the shares at a discount to the listed share price at that time.
Dividend reinvestment plans and dollar cost averaging
One of the benefits of regularly reinvesting dividend payments is that over time share prices tend to move, so shares can be purchased at different prices. This concept is known as dollar cost averaging, which works on the concept that by purchasing shares on a regular basis over a period of time rather than buying all the shares at once an investor can avoid only buying shares when the price is high.
Why do companies offer dividend reinvestment plans?
By offering new shares in a company rather than distributing cash to investors through dividends, the company is able to keep the money to reinvest in the company instead.
How does a dividend reinvestment plan work?
Companies that offer dividend reinvestment plans will generally advise investors when they buy shares that the company offers a DRP and provide instructions on how to take part. This generally involves completing a DRP form and returning it to the company’s share registry; many companies will also have the option of opting in or changing your preferences online.
Do all companies offer dividend reinvestment plans?
Not all companies provide the option of dividend reinvestment plans, nor is there any guarantee if they do that it will continue.
Things you should know
The information on this website has been prepared without taking account of your objectives, financial situation or needs. Because of this, you should consider its appropriateness, having regard to your objectives, financial situation and needs and, if necessary, seek appropriate professional advice. If a Product Disclosure Statement is available in relation to a particular financial product, you should obtain and consider that Product Disclosure Statement before making any decisions about whether to acquire the financial product. The information contained on this website does not constitute the provision of advice or constitute or form part of any offer, solicitation or invitation to subscribe for or purchase any securities or other financial product nor shall it form part of it or form the basis of or be relied upon in connection with any contract or commitment whatsoever. Any securities or prices used in the examples on this website are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not a reliable indicator of future performance. This website may contain material provided directly by third parties. This information is given in good faith and has been derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group nor any of their related entities, employees or directors (together, "Westpac"), nor the Participant, accepts responsibility for the accuracy or completeness of, or endorses any such material. This website may also contain links to external websites. Westpac and the Participant do not accept responsibility for, or endorse the content of, such external websites. Except where contrary to law, Westpac and the Participant intend by this notice to exclude liability for material provided directly by third parties and the content of external websites.