Automatic Dividend re-investment

EdGasket

I don't think reinvesting dividends willy-nilly is a good idea especially if there are charges. If everyone reinvests their dividends then afterwards you'd own no more of the company than you did before the dividend making it a totally pointless excercise.

I would take the cash every time and invest it in what you want, when you want and at what price you want.

System

EdGasket wrote: »

I don't think reinvesting dividends willy-nilly is a good idea especially if there are charges. If everyone reinvests their dividends then afterwards you'd own no more of the company than you did before the dividend making it a totally pointless excercise.

I would take the cash every time and invest it in what you want, when you want and at what price you want.

No!

Assuming that the question is about automatic reinvestment of dividends through a broker (rather than a scrip dividend where there would be no charges) then the broker buys shares in the market so the investors share of the company must increase since the firm is not issuing any new shares.

If it is a scrip dividend then the value of the company would increase as it issues shares rather than paying out a dividend (so paying out less cash).

TrustyOven

moneyfoolish wrote: »

I don't understand why anybody who wanted to re-invest all dividends would not buy an acc fund with no dividend charges. Can anybody enlighten me?

I know it's not relevant to this topic, but...
1. know how much dividends you get
2. can maybe see how well you are doing towards FI
3. you will reinvest anyway, but not automatically
4. didnt someone have problems switching from acc to inc funds in a thread the other week? they said in hindsight it seemed easier to just get inc funds and manually reinvest.

Don't most platforms have free reinvestment of dividends for funds anyway? (not automatic, but you can roll it together with your next purchase)

greenglide

But this is talking abouts ITs and shares, not funds.

Reinvesting dividends from ITs and other shares will always incur a cost to purchase the shares. The same IT will not be available as "acc" or "inc" but you get some which pay little or no dividend. Generally companies that don't pay dividends do so because they are in trouble!

masonic

greenglide wrote: »

Generally companies that don't pay dividends do so because they are in trouble!

That seems like a ridiculous assertion. About as ridiculous as saying that companies who do pay a dividend generally have no growth potential.

Perhaps you should read this for other possible explanations why a company may decide not to pay a dividend.

EdGasket

Economic wrote: »

No!

Assuming that the question is about automatic reinvestment of dividends through a broker (rather than a scrip dividend where there would be no charges) then the broker buys shares in the market so the investors share of the company must increase since the firm is not issuing any new shares.

If it is a scrip dividend then the value of the company would increase as it issues shares rather than paying out a dividend (so paying out less cash).

Most companies offering scrip dividends simply issue new shares to satisfy those who require shares instead of a cash dividend.

Nanpy

greenglide wrote: »

Generally companies that don't pay dividends do so because they are in trouble!

Who's going to break the news to Bezos and Zuckerberg?

System

EdGasket wrote: »

Most companies offering scrip dividends simply issue new shares to satisfy those who require shares instead of a cash dividend.

Yes! Your argument was that if everyone reinvested their dividends then they would not benefit but if this was done using scrip dividends the value of the company would increase as it is retaining the dividend that it would otherwise pay out.

EdGasket

Economic wrote: »

Yes! Your argument was that if everyone reinvested their dividends then they would not benefit but if this was done using scrip dividends the value of the company would increase as it is retaining the dividend that it would otherwise pay out.

So? Any 'increase' in value by not paying a dividend to some holders will benefit all holders, those that took shares in lieu of dividend and those that didn't. There is no net gain anyway. You either:
1) have your original shares and a cash dividend and that cash is no longer in the company,
2) or, if all holders take a scrip dividend, they have exactly the same stake in the company as before the dividend and the company has the same value as before the dividend i.e. the latter case is a pointless excercise.

See:
http://money.stackexchange.com/questions/22808/why-would-a-company-issue-a-scrip-dividend-and-how-will-this-issue-affect-me

System

No, the higher value of the company will only benefit the shareholders who take the scrip dividend as they will have a larger share of the company.