BEWARE - Dividend Reinvestment Plans

2am

BEWARE - The dividend is not reinvested in shares on the date of the dividend payment, but in the market over several weeks ahead.  If the share price increases you can be committed to blind purchases at an inflated price without any control, plus you pay a % service charge as well as the stamp duty.  Today I was allocated shares at almost 10% higher price than if I had received the Cash dividend and invested in those same shares that same day.  Of course it could go the other way in a falling market.  Perhaps best to keep control by taking the Cash dividend instead of joining a DRIP.

Audaxer

I recently had VLS dividends automatically reinvested a couple of days after payment of the dividend. I'd be surprised and complaining to the investment platform if it took several weeks for an automatic dividend reinvestment. 

2am

Thanks Audaxer.  Here is the letter from SLA Standard Life Aberdeen.
"Thank you for getting in touch about your DRIP allocation.

 

Our records show that your 19 May 2020 dividend is due to be reinvested through DRIP but as the shares allocated for DRIP are bought on the open market it can take up to two/three weeks after 19 May 2020 for the trades to settle.  The new amount of shares will be issued on 11 June 2020.

 

We’ll send you an email on 11 June to let you know that your share purchase advice note and dividend confirmation are available to view and download from the share portal."

 

wmb194

For me, when I've done it, with Barclays it has always been the same day as the dividend payment has been credited to my account. With Aberdeen and its investment trust investing offering, where you can only invest in its own ITs, it was the next working day after the dividend payment date. It sounds like the real issue is Standard Life and its practices.

Old_Lifer

If you take the dividends in cash then invest  in further shares  yourself,  is this not more expensive ?     What dealing charges  do you  pay  each time  for  buying  those shares ?      If the amount of the dividend is fairly small,  it may perhaps make sense to  let the dividends build-up,  then  invest a lump some with one dealing charge  on a future market dip.

bowlhead99

SLA's dividend reinvestment programme lets you reinvest the dividend income for a service charge 0.5%. So a £400 dividend can be invested for only £2. Plus stamp duty of course but you would pay stamp duty when buying shares in the market yourself, so ignore that bit.

The T&C of the scheme says that they will instruct their broker to purchase shares 'as soon as reasonably practical' after the relevant dividend payment date. They also note that trades from all participants will be aggregated and the broker may carry out several market transactions which may take a number of days. Naturally, the company does not want to be accused of trying to distort the market in its own shares by putting through a massive buy order for millions to be fulfilled all at once. By aggregating the orders of all the shareholders who want to use the scheme, a more or less favourable price might be achieved than if your own personal order had been executed separately, and this is made clear in the Drip T&Cs.  Once they have placed all the orders, you will get your new shares at the average price achieved from the whole process. Just because the price is high on 11 June, does not mean that you are going to be paying the 11 June price, if the orders have been going in for the last five or ten trading sessions. 

One might imagine that with the markets quite volatile at the moment the broker working a large buy order might take some days to fill. A couple of weeks sounds excessive. If you don't like the scheme, you don't need to use it and could simply make your own arrangements to purchase new shares every so often. Either with your own money when the shares go ex-div and you know how much you're going to receive, or with the cash proceeds. Then you have complete control. But you have to do the admin of placing orders yourself, and the costs may be higher.

Drip schemes are a decent lazy solution because if shares go up in value (say) 5% a year, the average daily movement is only 0.02%, and so a slight delay on dividend reinvestment will only cost you a fiftieth of a percent of the dividend value per day. Obviously in practice it could be a lot more costly than that, but at other times the market will be moving in the opposite direction and you'll win rather than lose. 

Some brokers allow automatic dividend reinvestment for low percentages or fixed low costs, but often have a higher minimum charge than SLA's £1.40. 

steampowered

As you say, while on some occasions you will lose by a few %, on other occasions you will gain by a few %. So it all balances out.

dunstonh

I use pre-funding platforms.   So, the day of reinvestment can be the same day.
Plus, I dont use shares but funds. So, no issues on other charges.

2am

My Standard Life Aberdeen final dividend was almost £5000 so a reinvestment loss of nearly 10% is concerning.  SLA's response today is to refer me to the T&C of their DRIP, which allows their broker to buy in the market for reinvestment participators gradually over a period of time, not on the date of dividend.   That blind risk and uncertainty over more than 3 weeks is unacceptable.  I have changed my instruction for the future to receive Cash dividends rather than DRIP.