What is a Dividend Reinvestment Plan (DRIP / DRP)?
A dividend reinvestment plan abbreviated as DRIP or sometimes DRP is a plan offered by a corporation which 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.
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 DRIPs. 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 who offer DRIPs. First, shares purchased through DRIPs indirectly free up more capital for the corporation to use. Secondly, I believe shareholders who actually acquire shares through a DRIP 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 DRIPs 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.
Maybank’s Dividend Reinvestment Plan
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.
Circa 2020, we’ve come a long way where we as Malaysians are able to subscribe to DRP’s online. I’ve written about it hERE.
If you however are too lazy to go to the post office for your DRP, you can sign up for a Rakuten Trade nominee account.
I have now moved most of my stocks that have DRPs to my Rakuten account as they can handle all corporate actions. For FREE.
Use my code – 6ebFMSSTQU if you plan to sign up.
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.