Skip to content
Advertisements

Drip of Dividends – Receive or Reinvest Dividends

There are days where we receive corporate actions from equities we buy. Some of the common corporate actions from the equities counters are the rights issue, stock splits, reverse splits, share buy back and dividend reinvestment.

One of my favourite corporate action would be the dividend reinvestment scheme which is offered by some counters. There is, of course, the pro and cons of investing into such scheme.

Truth be told, it is definitely not a rocket science and not very dummy proof to choose between 1) take shares, 2) take cash or 3) a split of both. Using the case study of two different shares, I would like to bring forth a comparison and look at how to optimise the use of the Distribution Reinvestment Plan or Scrip Dividend Scheme (whichever name sounds familiar to you) for both REITs and non-REITs shares.

Usually, after the book closure of the share, the share registry/company who handles the dividends will send out the corporate action either through the bank (for custody accounts) or directly to the investor.

Scenario 1: UOB

Distribution Period 1 Apr 2017 to 30 Jun 2017??
Distribution Rate 0.35 cents per unit (Tax-exempt)
Books Closure Date 26 July 2017??
Distribution Payment Date 29 Aug 2017??

Scrip Dividend Scheme

N – Number of shares entitled
S – Current share holdings
D – Declared Dividend
V – Value of new shares

Screen Shot 2017-08-05 at 05.45.45

DRP with Fractional Entitlements

Dividend reinvestment (rounded up or down of Fractional Entitlements)

We apply the above Share Entitlement formula. For the basis of simple calculation, the witholding tax is 0% for Singapore residents with all entitlements rounded down or down to the nearest whole number if it is less than 0.5 or up to the nearest whole number if it is more than 0.5.

Unit Holdings: 1,000
Reinvestment Share price: $24.00

N = 1000 x 0.35 / 24.00

N = 14.58 = 15 units

So in the above scenario, it will make sense to consider a full scrip dividend.

Scenario 2: Keppel REIT

Using the declaration of dividend for the distribution of 1 Apr 2017 to 30 Apr 2017 as the basis of the case study below. The distribution for REITs consists of 3 components – Taxable Income, Tax-Exempt Income and Capital.

Distribution Period 1 Apr 2017 to 30 Jun 2017
Distribution Rate 0.98 cents per unit (Taxable)
0.34 cents per unit (Tax-exempt)
0.10 cents per unit (Capital distribution)
Books Closure Date 26 July 2017
Distribution Payment Date 29 Aug 2017

 

REIT Entitlement calculation

REIT Entitlement calculation

N – Number of shares entitled
U – Current share holdings
D – Declared Dividend
V – Value of new shares
T – Taxable component

Dividend reinvestment (Rounded down to nearest whole unit)

We apply the above Unit Entitlement formula. For the basis of calculation, the witholding tax is 0% for Singapore residents on REITs, with all entitlements rounded down.

Unit Holdings: 1,000
Reinvestment Share price: $1.139

N = (1,000 x 0.0098)/1.139 + (1000 x 0.0034) / 1.139 + (1,000 x 0.0010) / 1.139

N = 8.6 + 2.98 + 0.87 = 8 + 2 + 0.88 = 10 shares

So in the above scenario, it might have been worthwhile to perhaps consider a partial dividend in cash + shares to maximise the returns in investment value.

Note: Reinvestment of Dividends into shares is not always offered in some of the share counters and it will also depend upon the subscription rate. As such it will be good to take note of that when deciding whether to subscribe for a “permanent election” of scrip dividend or cash dividend.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: