Dividend Reinvestment Scheme for Successful Business

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Table of Contents

Introduction
Dividend Reinvestment Scheme
Conclusion
Works Cited

Introduction

The paper defines what a dividend reinvestment scheme means as well as the advantages it has to both the investors and the listed companies.

Dividend Reinvestment Scheme

This is a plan where investors can reinvest their cash dividends by buying more shares from the company (Mayo 373). In this case, the investors increase the value of their investments. The scheme can only be carried out by already listed firms that offer cash dividends. The additional shares will be allocated to you at the prevailing market share price. The decision to participate in the dividend reinvestment scheme is left to the investors. The scheme is flexible, in the sense that investors have the option of receiving their dividend in form of additional shares, a combination of shares/cash, or cash only (Mayo 374). The participation of the investors in the dividend reinvestment scheme is free of charge without the investors incurring any brokerage or administration fee. For investors to participate in the scheme, they must fill out application forms which are submitted to Australia Securities Exchange through share registry. Firms and investors gain some benefits from these dividend reinvestment plans. The investor has the benefit of obtaining shares at a much lower cost because there is no payment of any brokerage fee or any other cost. In addition to raising capital, the firms do not need to issue shares through underwriters since there is an automatic flow of new equity (Mayo 374). Nevertheless, a company will still incur administrative costs attributed to the scheme. The ranking of shares under the scheme and the existing shares remain equal from the date of issue. The investors are provided with a dividend reinvestment statement that highlights the details of the shares allotted to the investor under the scheme as well as the residual amount. The statement is normally given out after the dividend payment period.

Conclusion

Dividend reinvestment scheme has been a good way of raising additional capital for the companies with minimal cost. It also creates goodwill between the company and the company.

Works Cited

Mayo, Herbert. Investments: An Introduction. New York: Thomson South-West, 2008.

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Dividend Reinvestment Scheme for Successful Business

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