What is a Dividend Reinvestment Plan (DRIP / DRP)?
A dividend reinvestment plan abbreviated as DRP or sometimes DRIP is a plan offered by a corporation that allows shareholders to reinvest their cash dividends into additional company shares. Usually, shareholders receive cash dividends as a form of reward for owning stock in a corporation. However, with a DRIP, in lieu of those cash dividends, shareholders can instead opt to purchase and acquire additional stock in the company.
In most cases, a dividend reinvestment plan allows investors to purchase shares commission-free and at a significant discount to the current share price.
The things you need to do when applying for a DRP are:
- Decide how many shares you’d like to receive in lieu of cash dividends;
- Sign and date the Dividend Reinvestment Form (“DRF”);
- Fill in your CDS account number in the DRF;
- Affix a revenue stamp / setem hasil to the DRF; and
- Mail the form
Advantages of a Dividend Reinvestment Plan
As mentioned earlier, one of the biggest reasons shareholders opt for a DRIP is because you don’t have to pay your brokerage or commission fees.
More often than not with a DRIP, the shares offered will be at a discount compared to the current share price. Between zero commissions and the discount given, the cost to acquire shares through a DRIP is significantly lower than if the shares were purchased on the open market.
Dividend Reinvestment Plans in Malaysia
In Malaysia, not many companies currently offer DRPs. I still fail to comprehend the reason for this but it may be because most companies are just unwilling to spend the money to have such an exercise annually. There are many advantages to a dividend-paying corporation that offers DRPs. First, shares purchased through DRPs indirectly free up more capital for the corporation to use. Secondly, I believe shareholders who actually acquire shares through a DRP are more resilient and loyal as they can more easily recognize and appreciate dividends in their long-term growth investment.
Another issue I have with the DRPs offered by Malaysian corporations is that we as shareholders don’t have the option to automate the process. We have to do fill-up the form and mail it every single year if we wish to participate. There should be an option for us to automatically reinvest our dividends.
Online Dividend Reinvestment Plans
As we approach 2021, Malaysians are now able to apply for DRPs online. I’ve used both Tricor and Boardroom to apply for my DRPs.
This is a godsend for me as I no longer have to face the long queues at post offices just to send in a physical copy of my DRP form. Instead, I pay an extra RM3 handling fee to issuing houses like Tricor and Boardroom and let them do the necessary legwork.
An even better and cheaper way to apply for Dividend Reinvestment Plans is through a nominee account. If you’re a Rakuten Trade user, you would have noticed that they don’t charge you a single cent for corporate actions. No hassle, no fees, you even save on the RM10 setem hasil.
I am in the process of moving most of my stocks that have DRPs to my Rakuten account as they can handle all corporate actions.
Maybank Dividend Reinvestment Plan
Maybank is one of the few companies in Malaysia and in my portfolio that consistently offers dividend reinvestment plans every year.
I’ve been opting to go for their DRP and receiving discounted stocks instead of receiving dividends in cash. Of course, you should do this only when the math makes sense.
It is simple math. You compare the issuing price to the share price today and deduct the cost of applying for the DRP – RM10 setem hasil and a RM3 handling fee for an online application.
DRPs don’t make sense when the share price has of the company has been dropping for the few months preceding the DRP. I’ll be using Maybank as an example and continue to update this article as I opt for dividend reinvestments.
Boardroom’s Online DRP Application
Another Maybank DRP but this time, it was with Boardroom instead of Tricor. Why the change? I think it was due to Tricor’s handling of Maybank’s virtual AGM this year, they messed up and Maybank has opted for their rivals – Boardroom.
The process was pretty seamless, as easy as with Tricor. So I’ll not post a step-by-step guide this time around.
You can find Boardrooms website hERE.
You register with your email, together with photos of your MyKad. I had to wait a day for my account to be approved. Thereafter, their system will automatically tie your IC to companies you own in your CDS accounts. DRPs will appear under ”Corporate Actions”. From there, follow the instructions and eventually you’ll have to make the RM13 payment. And.. you’re done!
Things to note are the RM10 setem hasil fee as well as the RM3 service fee charged by Boardroom. Which is exactly the same as what Tricor charged in 2019. The issue price of the shares offered by Maybank is RM7.55 per share this time around.
I’ll be receiving a total of RM1,040.65 in dividend income.
Based on that and the terms of Maybank’s DRP this round, I can opt to receive a maximum of 75 shares. At an issuing price of RM7.55, that’s about RM567.63 in value.
The remaining RM473.02 will be paid out to me in cash.
Tricor’s Online DRP Application
Step 1 – Register and Login
First, head over to Tricor and obviously, you’ll have to go through the motions and sign up for an account.
Proceed to login to your account.
Step 2 – Selecting the Corporate Exercise
As highlighted in the image above, select the corporate exercise you as a shareholder wishes to take part in.
In this case, Maybank’s Dividend Reinvestment Plan. Click ‘Next’.
Steps 3 & 4 – Terms and Conditions of the DRP
The next step brought me to the T&Cs of the dividend reinvestment plan. Read through, check the box and click ‘Next’.
Maybank is giving out shares in lieu of cash dividends. The shares will be issued at RM8 per share.
The lower the figure, the better. Because I’ll get more shares.
Step 5 – Declaration
Declare that you’re fit to participate in the corporate exercise. Check the box and click ‘Next’.
Step 6 – My Dividends
So, this is how a DRP works. First, the price for one Maybank share is hovering around the RM8.9 and RM9 region.
Without the DRP, I stand to receive RM1,052.16 in dividend income. Cash.
By electing to receive my dividends in Maybank shares instead of cash, I’ll receive 69 Maybank shares and RM493.20.
How did I get 69 shares you ask? That’s RM558.96 / RM8 per share.
RM8 being the issue price mentioned earlier.
So, the why is simple. I stand to receive RM1,052.16 if I took it all out in cash.
Maybank is giving me some of it in shares, at RM8 per share.
The market price for one Maybank share is RM8.90. That’s a 11.25% premium. So if the price holds, I’ll gain 11.25% on my 69 shares.
However, you do not want to opt for a DRP if:
1. The issue price is ABOVE the share price (duh)
2. The issue price is really close to the share price.
First, no one in their right mind will opt for Maybank’s DPR if say, the market price for a share is RM7. This usually happens when a stock’s prices are in a freefall.
For number 2, we have to pay to participate in corporate exercises. In this case, see Step 7.
Step 7 – Payment
Followed the instructions and made my payment. RM13 in handling fees and stamp duty.
An extra RM3 in handling fees. Heck, I’d pay RM10 to save my time.
The Traditional Dividend Reinvestment Plan – Post Office and Setem Hasil
In my portfolio, only two companies have DRIPs – Maybank and Axis REIT. I received Maybank’s dividend reinvestment form (DRF) through the mail on the morning of 10 October 2016. Previously, I’ve read online that Maybank is offering shares purchased through their DRIP at RM7.25.
For those of you who are unfamiliar with Dividend Reinvestment Plans in Malaysia, there are a few things you take note of:
- The due date to return the DRF;
- Every DRF requires a RM10 revenue stamp (setem hasil) which can be purchased at your local post office;
- Jotting down the amount of shares you intend to purchase; and
- Your signature.
However, reading through the DRF, I noticed that the due date to return the form to them is on the 13th of October. Being a Monday, the post office was packed and I had to wait for close to an hour to purchase my revenue stamp and post the DRF. Below is a picture of the DRF.
As of today, Maybank’s shares are at RM7.66, which means the shares acquired through the DRIP is at a 5% discount.
Have you participated in any Dividend Reinvestment Plans? Also, do any of you know of companies in Malaysia that offer an automatic DRIP?
As always, thank you for reading.