HL - Share Purchases S&S ISA

Damper132

HI all,

im just looking for a little advise, im looking to purchase a dividend paying share maybe in Royal Dutch to just sit and leave there. The only think im struggling to find any info on when the dividend is paid is there an option to automatically reinvest these into more shares to take advantage of the compounding effect i just cant seem to see if this is a possibility?

Seabee42

You can select this option when you purchase the shares. Note though if the dividend is less than the share price it wont work.

Damper132

thanks so basically i would have to purchase a good few shares to make sure the amount i would receive in dividends would be at least equal to the value of one share, and the balance would just sit in my account?

ColdIron

You can specify that dividends are Automatically Reinvested in your Income Instructions per account under Account Settings. It's account wide so you cant reinvest some and not others. If you have set Automatic Reinvestment the dividends are held in your Income Account until a set day of the month, if there is not enough to cover the cost of a share your dividends are transferred to your Capital Account. There is a cost for this of 1% (£1 min, £10 max) but it's better than the usual £11.95 dealing fee

Damper132

brilliant thanks, i guess the £1 fee is set at £10 automatic reinvestment makes it quite expensive as its effectively a 10% charge would it be better to set the reinvesment limit higher to reduce the impact of the charge?

ColdIron

Yes, but then again no. Income reinvestment on small amounts of shares is 10% but it's still only a quid. The problem you will have is that I don't think the dividends accumulate in your Income Account until it hits the limit. While I wouldn't stake my first-born on it my recollection is that: I used to have some British American Tobacco shares whose price was, say, £30. The interim dividend was about £25 and as this wasn't enough to cover a single share it was moved into my capital account where it stayed. The final dividend was about £50 which was enough to buy a share and the remaining £20 was moved into my Capital Account. The residual £45 (£25 + £20) was never reinvested

I haven't used Automatic Reinvestment for a while now as all my dividends are set to be paid out so I can't check. To be honest if you are not using the dividends as income I would focus on growth or total return and high dividend yielding shares are probably not the best solution to this

jaybeetoo

It's potentially high risk just buying shares in one company. To spread the risk, how about an investment trust - you can still reinvest the dividends.

TrustyOven

Or how about a fund, to start with?
That way you get to buy fractional shares in the fund, and you get to learn how to do all this (your first post in this topic suggests you are inexperienced).
And if you buy an Income (Inc) version of a fund, you can see how the dividends come in etc.

AnotherJoe

You might as well throw a dart at a page of the FT as picking a share just because it pays dividends. Have you been reading about dividend reinvestment and decided this is the route to riches?You still need to choose a good share !!
And why shares? Why not funds or ITs or ETFs? And if a fund choose an Acc and you don't have to bother reinvesting.

Damper132

yeah i guess your right, i just liked the idea of owning some shares in one company but maybe isnt the best financial decision i could make. i already have a handful of funds i invest in on a monthly basis maybe i should just stick to that for now there all accumulation units too so thats all taken care of

chucknorris

Damper132 wrote: »

yeah i guess your right, i just liked the idea of owning some shares in one company but maybe isnt the best financial decision i could make. i already have a handful of funds i invest in on a monthly basis maybe i should just stick to that for now there all accumulation units too so thats all taken care of

A couple of years ago I switched my whole SIPP and ISA (about 18% of my portfolio) into one company (British Land). But I became a little uncomfortable with the risk (and volatility), so I switched back into a tracker etf when I was in a position to take a profit. But earlier this week I re-invested about 5% of my portfolio value in British Land again, I thought the dividend (approx 5.7%) justified the risk. I'm still learning to appreciate what my risk comfort level is, I subsequently became very uncomfortable with placing £170k into 2 one year bonds in April, which only pay an average of 2.1%, I regretted it because after tax and inflation it guarantees a loss, it made me feel like a mug.